Spenders help speed up US growth

The US economy revived in the second quarter after a tepid start to the year, boosted by consumer spending and exports.
The US economy revived in the second quarter after a tepid start to the year, boosted by consumer spending and exports.PHOTO: AGENCE FRANCE-PRESSE

WASHINGTON • The world's largest economy expanded at a faster pace in the second quarter and managed to eke out a gain at the start of the year, painting a picture of incremental progress which could bring the United States Federal Reserve closer to hiking interest rates this year.

Gross domestic product rose at a 2.3 per cent annualised rate, and a revised 0.6 per cent advance in the first quarter wiped out a previously reported contraction, Commerce Department data showed yesterday. The revision reflected steps taken by the government to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data, as well as new source data.

"Updated GDP numbers deliver a double-punch to US economy doom-mongers, painting a reassuringly bright picture of the health of the US economy so far this year and raising the odds of the Fed hiking interest rates in September," said Mr Chris Williamson, chief economist at Markit.

Second-quarter growth was boosted by consumer spending as households used some of the windfall from cheaper petrol late last year and early this year to shop.

The strengthening labour market also encouraged consumers to loosen their purse strings. Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.9 per cent rate from a downwardly revised 1.8 per cent pace in the first quarter. The saving rate fell to 4.8 per cent from 5.2 per cent

The numbers suggested that barriers to a Federal Reserve interest- rate increase this year are getting smaller, with a possible hike in interest rates seen in September - the first rise since 2006.

The Fed on Wednesday described the economy as expanding "moderately" while upgrading its view of the labour market and saying housing had shown "additional" improvement.

"They see the economic outlook as generally improving," said investment strategist Paul Eitelman for Russell Investments. "The hurdle for hiking interest rates is fairly low as long as there is some indication that inflation is going to be stable to higher going forward."

The economy has moved beyond some of the early 2015 constraints, including weather and port delays, while cooling global markets, a strong US dollar and insufficient wage gains may continue to limit growth.

A report from the Labour Department yesterday showed fewer Americans than forecast filed applications for unemployment benefits last week. Jobless claims rose by 12,000 to 267,000 in the period ended July 25.

An improving job market is among reasons US households are underpinning economic growth.

Cars remain a steady source of strength for growth in consumer spending and for factory production. The residential property market is also in an upswing as low mortgage rates and easier lending requirements encourage prospective home buyers.


A version of this article appeared in the print edition of The Straits Times on July 31, 2015, with the headline 'Spenders help speed up US growth'. Print Edition | Subscribe