Featured # Markets | 2 years ago

U.S. Economy Advances in Second Quarter Leading to More Investments

In the second quarter, U.S. economic growth was less lethargic than previously anticipated as exports advance more than imports and businesses increased their investments, optimistic signals for the economic outlook. GDP grew at 1.4% annual pace, reported by the Commerce Department on Thursday in its third outlook of GDP. This gained from the 1.1% rate it reported in August and higher than analysts’ anticipations. The change included data that reported businesses reduced investments in buildings and equipment less than the government previously projected, while they poured more money into R&D.

That left growth in overall business investment at a 1 percent annual pace, its first increase since the third quarter, and indicates the worst of an energy-sector-led slump in business investment may be finished. The fall, ignited by a sharp decline in oil prices that affected America’s energy industry, has policymakers worried at the Federal Reserve because less investment could hinder economic growth in the long term. The economy has had difficulties to regain momentum since output started pausing in the second half of 2015 and the broad growth for GDP in Q2 stayed under historically average rates.

Also, consumer spending, which accounts for more than two-thirds of U.S. economic activity, was strong in the second quarter, gaining at a 4.3 percent annual rate, while growth in exports outdid that of imports enough to spark GDP by the most since the third quarter of 2014. Though, companies continued to run down their inventories sharply, cutting stocks by $50.2 billion and subtracting from GDP growth, while home building also fell.

The U.S. dollar advanced slightly versus a basket of currencies while yields on U.S. government debt increased. The GDP data is unlikely to have much impact on the near-term outlook for monetary policy although it could make Fed policymakers more optimistic the U.S. economy is resisting feebler growth globally.

Federal Reserve Chair Janet Yellen reiterated on Wednesday that Fed policymakers anticipate increasing interest rates by the end of 2016 because they fear that collecting steam in the U.S. labor market could drive inflation.

New claims for unemployment benefits rose slightly last week but remained at levels consistent with a healthy job market, according to a separate report from the Labor Department. The Commerce Department is set to release new inflation data on Friday. The government also reported that after-tax corporate profits dropped at a 0.6 percent pace in the second quarter, a lighter fall than initially projected. While profits are dropping, a substitute measure of growth, gross domestic income fell at 0.2% rate in the second quarter. GDI gauges the economy’s performance from the income perspective.

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