Lenny Ignelzi/APBy Lucia MutikaniWASHINGTON -- The U.S. economy rebounded more strongly than initially thought in the second quarter with more of the growth being driven by domestic demand and less by restocking by businesses.
Gross domestic product expanded at a 4.2 percent annual rate instead of the previously reported 4 percent pace, the Commerce Departm! ent said Thursday, reflecting upward revisions to business spending and exports.
We expect growth during the latter half of the year to continue running at an above 3 percent pace ...
It combined with separate reports showing a second consecutive week of declines in the number of Americans filing new claims for unemployment benefits and a jump in home purchase contracts to give the economy a healthy glow.
"We expect growth during the latter half of the year to continue running at an above 3 percent pace, underscoring the rebound in growth momentum as economic slack continues to decline," said Gennadiy Goldberg, an economist at TD Securities in New York.
The dollar firmed against a basket of currencies on the data. U.S. stocks were down as traders kept a wary eye on Ukraine, which accused Russia of entering the country. Prices for U.S. Treasury debt rose as the troubles in Ukraine triggered flight-to-safety bids.
Separately, the Labor Department said the number of Americans filing new applications for jobless benefits slipped 1,000 to a seasonally adjusted 298,000 last week, underscoring the strengthening labor market fundamentals.
Home Resales Soar
In a third report, the National Association of Realtors said its pending home sales index, which leads home resales by a month or two, increased 3.3 percent in July to its highest level in 11 months.
That was the latest indication that the housing market recovery was back on track after faltering in the second half of 2013 in the wake of a run-up in mortgage rates.
The composition of growth in the second quarter was even more encouraging, with the sources of growth broad-based.
Domestic demand increased at a brisk 3.1 percent rate, instead of the previously reported 2.8 percent pace. It was the fastest pace since the second quarter of 2010 and suggested the recovery was becoming more durable after output slumped in the first quarter because of an unusually cold winter.
The broad-based growth, however, won't be enough to spur the Federal Reserve to start raising interest rates as slack still exists in the labor mar! ket and inflation will probably continue to run below the U.S.! central bank's 2 percent target.
"We still have a long way to go. Hence, the Fed remains cautious about how rapidly it raises rates," said Diane Swonk, chief economist at Mesirow Financial in Chicago.
Economists had expected the second-quarter GDP growth pace would be revised down to 3.9 percent. The economy contracted at a 2.1 percent pace in the first quarter.
Rising Income
Gross domestic income, which measures the income side of the growth ledger, surged at a 4.7 percent rate, consistent with strong job gains during the quarter. That was the fastest increase since the first quarter of 2012.
This alternative growth measure decreased at a 0.8 percent pace in the first quarter. While personal income growth for the first quarter was revised down a bit, estimates for the second quarter were more robust than previously believed.
After tax corporate profits rebounded from a decline that had been spurred by the expiration of a depreciation bonus, hitting a three-year high in the second quarter.
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, was unrevised at a 2.5 percent rate.
Businesses accumulated $83.9 billion worth of inventory in the second quarter, less than the initially reported $93.4 billion. That saw restocking contributing 1.39 percentage points to GDP growth rather than 1.66 percentage points.
The relatively smaller inventory build means less stock overhang, which bodes well for third-quarter GDP growth. Third-quarter growth estimates range as high as a 3.6 percent rate.
While trade was a drag for a second consecutive quarter, export growth was raised to a 10.1 percent pace from a 9.5 percent rate. Business spending on equipment and nonresidential structures, such as gas drilling, was revised higher.
Housing market! -related spending was revised slightly down as was government spending.
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The gross domestic product measures the level of economic activity within a country. To figure the number, the Bureau of Economic Analysis combines the total consumption of goods and services by private individuals and businesses; the total investment in capital for producing goods and services; the total amount spent and consumed by federal, state, and local government entities; and total net exports. It's important, because it serves as the primary gauge of whether the economy is growing or not. Most economists define a recession as two or more consecutive quarters of shrinking GDP.
1. Gross Domestic Product -
The CPI measures current price levels for the goods and services that Americans buy. The Bureau of Labor Statistics collects price data on a basket of different items, ranging from necessities like food, clothing and housing to more discretionary expenses like eating out and entertainment. The resulting figure is then compared to those of previous months to determine the inflation rate, which is used in a variety of ways, including cost-of-living increases for Social Security and other government benefits.
2. Consumer Price Index -
The unemployment rate measures the percentage of workers within the total labor force who don't have a job, but who have looked for work in the past four weeks, and who are available to work. Those temporarily laid off from their jobs are also included as unemployed. Yet as critical as the figure is as a measure of how many people are out of work and therefore suffering financial hardship from a lack of a paycheck, one key item to note about the unemployment rate is that the number does not reflect workers who have stopped looking for work entirely. It's therefore important to look beyond the headline numbers to see whether the overall workforce is growing or shrinking.
3. Unemployment Rate -
The trade deficit measures the difference between the value of a nation's imported and exported goods. When exports exceed imports, a country runs a trade surplus. But in the U.S., imports have exceeded exports consistently for decades. The figure is important as a measure of U.S. competitiveness in the global market, as well as the nation's dependence on foreign countries.
4. Trade Deficit -
Each month, the Bureau of Economic Analysis measures changes in the total amount of income that the U.S. population earns, as well as the total amount they spend on goods and services. But there's a reason we've combined them on one slide: In addition to being useful statistics separately for gauging Americans' earning power and spending activity, looking at those numbers in combination gives you a sense of how much people are saving for their future.
5 & 6. Personal Income and Personal Spending -
Consumers play a vital role in powering the overall economy, and so measures of how confident they are about the economy's prospects are important in predicting its future health. The Conference Board does a survey asking consumers to give their assessment of both current and future economic conditions, with questions about business and employment conditions as well as expected future family income.
7. Consumer Confidence -
The health of the housing market is closely tied to the overall direction of the broader economy. The S&P/Case-Shiller Home Price Index, named for economists Karl Case and Robert Shiller, provides a way to measure home prices, allowing comparisons not just across time but also among different markets in cities and regions of the nation. The number is important not just to home builders and home buyers, but to the millions of people with jobs related to housing and construction.
8. Housing Prices -
Most economic data provides a backward-looking view of what has already happened to the economy. But the Conference Board's Leading Economic Index attempts to gauge the future. To do so, the index looks at data on employment, manufacturing, home construction, consumer sentiment, and the stock and bond markets to put together a complete picture of expected economic conditions ahead.
9. Leading Economic Index - More from DailyFinance:
Source : http://www.dailyfinance.com/2014/08/28/gdp-rebounds-faster-than-thought/
