GDP Grows Faster Than Anticipated in Q2

The latest data show that the U.S. economy has assimilated the massive spending cuts and tax hikes that occurred earlier in the year better than expected. The Bureau of Economic Analysis  (BEA) reports that the Gross Domestic Product (GDP) grew at an annual pace of 1.7 percent in the second quarter (Q2).  Nonetheless, concern remains for the  economy which has slowed to a growth rate of less than two percent for three straight quarters.

Economists responding to the Bloomberg survey estimated a median of 1.6 percent. Predictions for economic growth for Q2 ranged from 0.1 percent to 1.8 percent.

GDP data is subjected to revision. Expansion in the first quarter of 2013 has been revised down to 1.1 percent. This is first estimate for Q2. After further analysis of data, the BEA will release another account in August and the final number for Q2 in September.

People confident about economy

Since the recession ended in June 2009, the growth has averaged two percent. At this pace, the economy does not have the momentum necessary to make a serious dent in the unemployment rate. Unemployment remains at 7.6 percent compared to the Fed’s objective of 6.5 percent. The number of Americans out of work stands at 11.8 million persons.

Appreciating home prices and an improving labor market are making people more confident about their personal finances and near-term economic conditions. New vehicles sales are the highest they’ve been in four years.

Auto makers expects demand to increase as the effects of federal spending cuts and higher taxes dissipate. In anticipation of higher sales, the auto industry has adjusted its annual schedule for retooling and keep facilities open to ramp up production.

The chief economist for UniCredit Group (New York), Harm Bandholz, forecasted a growth rate of 1.8 percent. Bandholz believes that the economy will gain strength as the “fiscal drag fades.” He remarked, “We have an economy that’s recovering from almost stagnating in the fourth quarter of last year. The consumer is looking resilient, though a bit weaker.”

More Q2 2013 GDP data

Growth in Q2 2013 was increased 0.4 percent because of gains in inventories.  Most economists had expected stockpiling to subtract from GDP. Gains in business investment and residential real estate also help fuel the economy.

The following categories recorded growth:

• Personal consumption expenditures (PCE) - 1.8 percent

• Durable goods - 6.5 percent

• Non-durable goods – 2.2 percent

• Exports –goods and services – 5.4 percent

• Nonresidential fixed investment – 4.6 percent

• Equipment – 4.1 percent

Household consumption, which accounts for 70 percent of GDP, added about 1.2 percent to the Q2 expansion.

Revisions for previous years

Revised data show that the recovery, although somewhat erratic, has been stronger than originally thought for 2012. Year-over-year figures show that the economy grew at 1.4 percent compared to 1.3 percent year-over-year increases for the previous three quarters. The growth rate for 2012 was revised up to 2.8 percent from 2.2 percent.

The BEA also says the severity of the economic contraction during the recession was less than reported and revised the rate of economic contraction from3.2 percent to 2.9 percent.