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 The Commerce Department on Friday raised its estimate of growth in
gross domestic product to a 4.6 percent annual rate from the 4.2
percent pace reported last month.
"It increases our confidence that strong growth is obtainable in the
second half of this year," said Chris Rupkey, chief financial
economist at MUFG Union Bank in New York.
The United States is bucking a spate of weaker overseas growth with
the euro zone and Japan slumping, and growth in China slowing as
well.
With the U.S. economy firing on nearly all cylinders, traders are
bracing for an interest rate hike from the Federal Reserve next
year. The dollar <.DXY>, which got a lift from the GDP data, has
risen about 7 percent against a basket of major currencies since
early July in anticipation.
The data also supported stocks, which were up marginally near
midday, while prices for U.S. Treasury debt fell.
A faster pace of business spending and sturdier export growth than
previously estimated were the two main factors behind the upward
revision to U.S. GDP, which had its best growth performance since
the fourth quarter of 2011.
Consumer spending growth was unrevised at a 2.5 percent rate as
stronger healthcare outlays were offset by weakness in spending on
recreation, other services and durable goods.
Household spending, however, is likely to accelerate, with another
report on Friday showing consumer sentiment hitting a 14-month high
in September.
BRISK DOMESTIC DEMAND
But the expansion in consumer spending, combined with strong
business investment, was nevertheless enough to push domestic demand
ahead at its fastest pace since 2010.
That suggests the economy's recovery is becoming more durable after
output slumped at a 2.1 percent rate in the first quarter because of
an unusually cold winter.
So far, data covering manufacturing, trade and housing suggest that
much of the second quarter's momentum spilled over into the third
quarter. Growth estimates for the July-September quarter range as
high as a 3.5 percent pace.
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When measured from the income side, the economy grew at a 5.2
percent pace during the second quarter, while corporate profits rose
at their fastest pace in three years.
Business spending on equipment was raised to an 11.2 percent pace
from a previously reported 10.7 percent rate. Businesses also
invested more in nonresidential structures, such as gas drilling, as
well as in research and development.
The trend likely persisted in the third quarter, with data on
Thursday showing business orders for capital goods rose in August.
Though trade was a drag for a second consecutive quarter, export
growth was raised to an 11.1 percent pace, the fastest since the
fourth quarter of 2010, from a 10.1 percent rate.
The dollar's strength, however, could take some of the edge off of
export growth in the months ahead.
"The recent appreciation in the dollar will continue and slow export
growth in 2015 by driving relative prices for U.S. exports higher,"
said Doug Handler, chief economist at IHS Global Insight in
Lexington, Massachusetts.
Businesses accumulated $84.8 billion worth of inventory in the
second quarter, contributing 1.42 percentage points to GDP growth.
The relatively strong pace could result in inventories making no
contribution to growth in the third quarter.
(Reporting by Lucia Mutikani,; Editing by Andrea Ricci)
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