US Economy Expands 4.2% In Q2

  @MeaganKaym.clark@ibtimes.com on August 28 2014 8:45 AM
Car factory worker
Ford worker Lakeira Dupree of Southgate, Michigan, performs a seat install on a new 2014 Ford F-150 truck as it undergoes assembly at the Ford Dearborn Truck Plant, June 13, 2014 in Dearborn, Michigan. Bill Pugliano/Getty Images

U.S. economic activity expanded at a 4.2 percent annualized rate in the second quarter as stronger consumer spending and business inventory spending lifted the number after a harsh winter slowed the first quarter, the Commerce Department said Thursday. The agency had previously estimated the second-quarter's growth rate at 4 percent.

"Businesses have bounced back after the bad winter disrupted production and demand, and consumers are gradually earning and spending more," Stuart Hoffman, chief economist for PNC Financial Services Group, said.

The median forecast of 77 economists surveyed by Bloomberg called for a 3.9 percent gain. An alternative measure called gross domestic income, the value of total income received by all sectors, shows the economy expanded at 4.7 percent. 

In the first quarter, gross domestic product, the value of all goods and services produced, fell 2.1 percent. So, even if the rebound in growth to above 4 percent holds through the rest of the year, 2014's growth will remain below the U.S. historical average growth rate.

"I'm pretty confident in the durability of economic growth in the 2 percent to 3 percent range," Scott Clemons, chief investment strategist at private bank Brown Brothers Harriman in New York, said Thursday. Clemons also pointed out the 2.5 percent rise in the personal consumption expenditures, known as the PCE. That number represents the growth rate for consumer spending.

That number has fallen in the years since the Great Recession as workers and their families have aggressively cut their outstanding debt rather than finance purchases with more debt. Clemons said "personal spending is still moving, this economy still has some life in it."

The second quarter's 4.2 percent growth figure "continues the recent run of stronger-than-expected data," Paul Dales, senior U.S. economist for Capital Economics, said.

The Commerce Department also revised its estimate of growth of real personal disposable income, from 3.8 percent to 4.2 percent, indicating that the agency believes consumption growth will pick up later this year.

"The new data reaffirm our forecast of continued strong growth in the third quarter of 3.6 percent," Doug Handler, chief U.S. economist for IHS Global Insight, said.

The Commerce Department also said pretax corporate profits grew 6.3 percent.

The Congressional Budget Office said Wednesday it forecasts the U.S. economy will grow by 1.5 percent this year. The CBO also estimated that the federal government's budget deficit would shrink to 2.9 percent of GDP, smaller than recent years. In 2009, the deficit rose to nearly 10 percent of GDP.

Join the Discussion