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 The Commerce Department said on Friday gross domestic product rose
at a 3.9 percent annual pace in the April-June quarter, up from the
3.7 percent pace reported last month.
The data supports the case that the U.S. economy may be gaining
enough strength to withstand an increase in benchmark interest rates
from record low levels despite growing concerns about the global
economy.
Still, many economists are expecting a cooler pace of growth in the
third quarter, a view bolstered by separate data showing slower
growth in services and a drop in consumer sentiment in September.
The U.S. Federal Reserve last week held off on hiking rates, but Fed
Chair Janet Yellen kept the door open to an increase this year in a
speech on Thursday night, as long as inflation remains stable and
growth is strong enough to boost employment.
"There are a lot of things to like about the domestic side of the
economy for the second half of the year despite all the global
malaise," said Jacob Oubina, senior economist at RBC Capital Markets
in New York. "If the domestic economy holds in there, (Fed
policymakers) are going to hike in December."
Second-quarter growth, which beat expectations in a Reuters poll for
the third GDP reading to be unchanged at 3.7 percent, was bolstered
by higher consumer spending, mainly on services like healthcare and
transport.
Treasury debt prices extended losses and the dollar hit a fresh
five-week high against a basket of currencies on the second-quarter
figures, although U.S. stock index futures pared some gains after
the September data was released.
The preliminary Purchasing Managers Index for the services sector
from Markit slipped to 55.6 in September from the final 56.1 reading
in August. A reading over 50 signals expansion in economic activity.
"The survey data point to sustained steady expansion of the U.S.
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.
The University of Michigan's final reading on consumer sentiment for
September slipped to 87.2 from 91.9 in August, although it was
higher than expectations.
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STRONGER BASE
But the stronger consumer spending and a smaller inventory build
reported for the second quarter are a good sign for growth in the
July-September period.
Consumer spending, which accounts for more than two thirds of U.S.
economic activity, was revised up to a 3.6 percent growth pace from
the 3.1 percent rate reported in August, helped by cheap gasoline
prices and relatively higher house prices boosting household wealth.
Revised construction spending data helped to push up the headline
figure, with non-residential fixed investment expanding 4.1 percent
in the quarter. Business investment on structures was revised
upwards along with residential fixed investment.
The revisions to second-quarter growth also reflected a smaller
accumulation of inventories than earlier estimated, reducing the
chance that a sharp unwinding in inventories would drag on growth.
"For the Fed, the forward-looking part is most important and the one
positive take-away is inventory contribution," said Gennadiy
Goldberg, interest rates strategist at TD Securities.
"There had been quite a bit of fear that strong inventory building
in Q2 would be unwound in Q3. It actually shows GDP should be a
little firmer in the next quarter, but not by a whole lot."
After-tax corporate profits were also stronger in the second quarter
than previously thought. Profits after tax with inventory valuation
and capital consumption adjustments showed a 2.6 percent rebound
from a slump in late 2014 and early 2015.
(Reporting by Krista Hughes; Additional reporting by Richard Leong,
Michael Connor and Gertrude Chavez-Dreyfuss in New York; Editing by
Andrea Ricci)
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