US GDP grows at strong 4 percent rate

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The nation’s economy expanded at a 4 percent annual rate in the second quarter, better than expected and underlining the sense that a long-awaited recovery is now picking up.

It’s a big bounce back from the first quarter, when the Commerce Department estimated the economy contracted at a 2.1 percent annual rate as a difficult winter bit into growth.

{mosads}The good news comes the same day President Obama is slated to talk about the economy in Kansas City, Mo.

Jason Furman, chairman of the Council of Economic Advisers, said growth in the second quarter “was strong, consistent with the recent further improvement in the labor market and other indicators.”

The Commerce Department also revised figures for the last two quarters of 2013 to show strong growth.

In the final three months of 2013, the economy expanded at a 3.5 percent rate, up from the previous estimate of 2.6 percent. And in the third quarter, growth was revised to 4.5 percent from 4.1 percent.

Those numbers show strong growth in three of the last four quarters.

The second-quarter 2014 bounce back was helped by consumer spending, which increased at a 2.5 percent pace, up from 1.2 percent in the January-March period.

The nation also has experienced several months of strong job gains, with unemployment falling to 6.1 percent.

But the good economic news hasn’t helped Democrats, who are in danger of losing their majority in the Senate this fall. They also haven’t led to stronger approval numbers for Obama.

The White House on Tuesday criticized Congress for not passing a new highway bill to fund road and bridge improvements. 

“The economy could do even better if Congress does its part to help, starting with taking the steps needed to ensure that work on our roads and bridges is not brought to a halt this fall,” Furman said. 
Republicans in Congress have criticized the White House and congressional Democrats for not acting on their jobs bills. They’ve also argued White House actions have contributed to a slower economic recovery.
Mark Zandi, chief economist for Moody’s Analytics, said the second-quarter figure is in line with the recent run of strong jobs growth of more than 200,000 a month. 

“These numbers feel more consistent with the jobs numbers,” he said. 

“This is more supportive of the idea that the economy is gaining traction and will look meaningfully better as we move into the last half of the year and into 2015.”

Growth was driven mainly by consumer spending and an increase in business inventories.

Inventories contributed 1.66 percentage points to GDP growth after subtracting 1.16 points in the first quarter. 

Economist Justin Wolfers cautioned on Twitter that fast inventory growth doesn’t necessarily mean more growth down the road. 

The economy also got a lift from business investment, government spending and spending on home building.

After a cold winter, exports increased 9.5 percent in the second quarter after a 9.2 percent decrease in the first.

The housing sector finally showed signs of life after two sluggish quarters, expanding at a 7.5 percent rate. 

David Crowe, chief economist for the National Association of Home Builders, said the improved housing data is a confirmation of the industry’s expectation of steady growth for the rest of the year.

“We don’t expect fiery-hot growth, but it should continue at a modest pace,” he said.

Crowe said the second-quarter expansion is a make up for all of the construction activity lost in the first quarter because of cold winter weather.

The fresh growth data isn’t expected to change the policy direction of Federal Reserve officials, who wrap their two-day meeting on Wednesday. 

Federal Reserve Chairwoman Janet Yellen had brushed off the first quarter contraction as a  temporary fluctuation affected mostly by the weather. 

— This story was updated at 10:16 a.m.

Tags Economics Jason Furman

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