Economy charged ahead in second quarter, logging 3.9% #GDP growth

The Atlanta Fed’s GDPNow model forecast for real GDP growth (seasonally adjusted annual rate) in the third quarter of 2015 is 1.4 percent on September 24, down slightly from 1.5 percent on September 17.

The economy rebounded last quarter after growing at a 0.6% pace from January through March amid harsh winter weather, a labor dispute at West Coast ports and a pullback in energy-industry investment after the plunge in oil prices. Americans spent more on services such as health care and transportation. Consumer spending increased just 1.8% in the first quarter.

The Commerce Department said the country’s gross domestic product rose at a 3.9% annual pace in the three months from April to June, up from 3.7% reported last month. The agency first pegged growth at 2.3% in July, before twice revising it upward.

Economists believe the subsequent slowdown in the summer will reflect a reduction by businesses in restocking their inventories.

“The survey data point to sustained steady expansion of the USA economy at the end of the third quarter, but various warning lights are now flashing brighter, meaning growth may continue to weaken in coming months”, said Chris Williamson, chief economist at Markit.

After-tax corporate profits were also stronger in the second quarter than previously thought.

For the whole year, economists expect a modest gain of around 2.2 percent, in line with the modest growth seen during the six years of the current recovery.

Among other details, business investment climbed at a 5.2% annualized pace, compared with a prior estimate of 4.1%.

Activity has been held back this year by a rise in the value of the dollar, which weakens sales of USA exports while making foreign goods more competitive in the United States.

These healthy revisions will help bolster the Federal Reserve Chair Janet Yellen’s opinion that the US economy will overpower any outcome from cooling global markets and fluctuations in global commodity and financial markets. Certainly if economic growth seems to be getting weaker, the Fed will not want to raise its target rate of interest.

After the Fed demurred on a hike last week, Yellen said late Thursday that improvements in the United States economy “will likely entail an initial increase in the federal funds rate later this year”.