US economy bounces back strongly in second quarter

A carpenter works on a new home at a residential construction site in the west side of the Las Vegas Valley in Las Vegas, Nevada April 5, 2013. REUTER/Steve Marcus

Gross domestic product likely grew at a 3.0 percent annual rate after shrinking at a 2.9 percent pace in the first quarter, according to a Reuters survey of economists.

'I don't think the contraction we saw in the first quarter is reflective of what's truly going on in the economy,' said Gus Faucher, senior economist at PNC Financial Services Group in Pittsburgh. 'We are seeing broad-based growth throughout the economy and that's going to be reflected in the GDP report.'

The anticipated growth pace will, however, leave output in the first half of the year flat. Earlier in the second quarter, growth estimates were as high as 4 percent, but they were cut as trade, consumer spending and business investment rebounded from the winter slump by less than expected.

Growth for 2014 as a whole could average below 2 percent.

'Irrespective of the precise GDP number that will print, we see no evidence to challenge our baseline view that the pace of economic growth is shifting higher to a three percent path for the balance of the year,' said Anthony Karydakis, chief economic strategist at Miller Tabak in New York.

Employment growth, which has exceeded 200,000 jobs in each of the last five months, and strong readings on the factory and services sectors from the Institute for Supply Management underpin the bullish expectations for the rest of the year.

The Commerce Department will release its first snapshot of second-quarter GDP at 8:30 a.m. (1230 GMT) on Wednesday. It will also publish revisions to prior GDP data going back to 1999.

Also on Wednesday, payrolls processor ADP is due to release its private sector employment report for July at 8:15 a.m. (1215 GMT) which is expected to show a gain of 230,000 jobs, according to a Reuters poll, down from a gain of 281,000 in June.

LITTLE POLICY IMPACT

Economists expect upward revisions to output for the last three years, noting that an alternative growth measure, gross domestic income, is running above GDP.

The GDP data, which will be released only hours before Federal Reserve officials conclude a two-day policy meeting, is unlikely to have much sway on monetary policy as the U.S. central bank has already dismissed the first-quarter contraction in output as a weather-related anomaly.

'The Fed will acknowledge the improved economic conditions. However, we still believe the Fed will wait at least until the second quarter of 2015 before starting to slowly raise interest rates,' said Maury Harris, chief economist at UBS in New York.

Growth in the second quarter is expected to have been driven mainly by consumer spending and a swing in business inventories.

Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, likely accelerated to a pace above 2 percent after braking to a 1.0 percent pace in the first quarter because of weak healthcare spending.

Inventories are expected to have contributed as much as one percentage point to GDP growth after chopping off 1.7 points in the first quarter.

Business investment, government spending and home building likely also lent support to growth.

Trade, however, was probably a drag for a second consecutive quarter as some of the increase in domestic demand was likely met by imports. Domestic demand is expected to have accelerated after almost stalling in the first quarter, which would underscore the economy's firming fundamentals.

(Reporting by Lucia Mutikani; Editing by James Dalgleish)

Lokasi:

Share :