US economy rebounds at mild pace in Q2

Washington, July 31 (IANS) The US economy rose at a faster pace in the second quarter after a weak start of this year, suggesting a steady economic progress would support the Federal Reserve to move closer to its first interest rate hike this year.

The US economy expanded at an annual rate of 2.3 percent in the second quarter, a moderate bounce from the revised 0.6 percent increase in the first quarter, Xinhua cited the Commerce Department as saying on Thursday.

Strong personal consumption led the rebound as consumers spent more of the windfall gains from lower oil prices they had saved in the first quarter, and many of the temporary factors that restrained growth in the first quarter faded, Jason Furman, Chairman of the White House Council of Economic Advisers (CEA), said in a statement on Thursday.

In the second quarter, the rise in GDP growth was led by a faster pace of personal consumption growth than the first quarter and a shift from negative to positive net export growth.

Consumer spending, which accounts for about 70 percent of the US economy, rose 2.9 percent in the second quarter, compared to an increase of 1.8 percent in the first. The saving rate fell to 4.8 percent in the second quarter from the first quarter’s 5.2 percent.

As the value of US dollar stabilizes, net exports, which subtracted 1.92 percentage points from the first quarter’s GDP growth, contributed 0.13 percentage point to the growth in the second quarter.

The Commerce Department also said on Thursday that the economy grew at a 0.6 percent rate in the first quarter, an upward revision from a previously reported 0.2 percent contraction.

However, weaker business investment and federal government spending have partly offset the positive contributions from consumer spending and improved net exports.

Non-residential fixed investment decreased 0.6 percent in the second quarter, in contrast to an increase of 1.6 percent in the first; and federal government spending decreased 1.1 percent in the second quarter, compared to an increase of 1.1 percent in the first.

Fed chairwoman Janet Yellen said earlier this month that, as the value of the dollar and crude oil prices stabilize, some of the headwinds restraining economic growth, including the negative effects of US dollar appreciation on net imports and low energy prices on oil drilling industry investment, would diminish over the course of this year.

Thursday’s GDP report was consistent with the Federal Reserve’s assessment of the economy. The Fed said on Wednesday that economic activity has been expanding moderately in recent months despite a soft business investment.

Fed officials on Wednesday upgraded their assessment of the job market and housing market, a sign that the central bank remains on track to raise interest rates later this year. But it did not provide a clear signal for the rate hike timetable.

Although Fed officials believed they are approaching to achieve the goal of maximum employment, one of the central bank’s dual mandates, the inflation, the other mandate for the Fed, has remained below its 2 percent target for years.

John Williams, president of the Federal Reserve Bank of San Francisco, said earlier this month that, with oil prices having moved back up from past lows and the dollar retracing some of its past gains, their effects on inflation will recede.

In addition, with the economy nearing “full strength”, there will be signs that underlying inflation trends are coming back up, said Williams. He expected the economic growth to average about 2.75 percent from the second quarter to the end of this year.

With Fed officials seeing continued improvements in job markets and confident that inflation would come back to the central bank’s target, the central bank is on track to hike interest rates. Yellen has said that officials expected to start the move later this year.

Market investors widely see September or even later as the most likely time for a Fed rate increase. The Fed has kept its benchmark short-term interest rate near zero since December 2008.

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