US economic growth exceeds expectations in 2nd quarter

The U.S. economy rebounded more strongly than initially thought in the second quarter, and details of a government report released Thursday pointed to sustainable underlying strength.

Gross domestic product — the nation's total output of goods and services — expanded at a 4.2 percent annual rate instead of the previously reported 4 percent pace, the Commerce Department said, reflecting upward revisions to business spending and exports.

It was the fastest pace since the third quarter of 2013.

The seasonally adjusted 4.2 percent annual growth rate for GDP came after the economy had shrunk at an annual rate of 2.1 percent in January through March. That was the biggest economic decline since the depths of the Great Recession.

The first-quarter decline had reflected mainly the effects of a harsh winter that kept consumers away from shopping malls, disrupted factory production and depressed the economy.

But some analysts cautioned that the economy’s performance for the whole year could still be lackluster. Dean Baker, a co-director of the Center for Economic and Policy Research, said Thursday’s revised figures are no cause for celebration.

“I don’t see much basis for being terribly optimistic. This is not a terribly good report,” he said, adding that annual growth figures will still take a hit because of weak performance in the first quarter. 

And Americans are more anxious now about the economy than they were immediately after the Great Recession, according to a study published by Rutgers University Thursday. 

Seventy-one percent of Americans say they think the recession exerted a permanent drag on the economy, according to the survey. By contrast, in November 2009, five months after the recession officially ended, the Rutgers researchers found that only 49 percent thought the downturn would have lasting damage.

Still, Baker anticipates bolstered growth in the second half of this fiscal year. 

Because of the rocky start, economists think growth for all of 2014 will average just 2.1 percent, little changed from last year’s 2.2 percent increase.

They are more optimistic about 2015. Many expect growth to accelerate to 3 percent, an indication that the economy is finally gaining cruising speed after the deep 2007–09 recession, the worst since the 1930s. The recession officially ended in June 2009, and over the past five years the economy has turned in subpar growth rates averaging about 2 percent a year.

"I am looking for 2015 to be a better year, assuming geopolitics don't get in the way," said Sung Won Sohn, an economics professor at California State University at Channel Islands. Economists worry that any of several political hot spots, from Ukraine to Israel to Iraq, could erupt in a way that would destabilize U.S. and global growth.

But Sohn said numerous factors should support growth in the second half of this year and in 2015. The principal strength is expected to come from further improvement in the job market.

In July, employers added 209,000 jobs, the sixth straight month of solid 200,000-plus job growth. Those gains have averaged 244,000 a month since February, the best six-month string in eight years.

In its second estimate of growth for April through June, the government said companies’ restocking of supplies contributed less than it had first estimated. But a higher trade deficit subtracted less from growth than initially estimated.

The downward revision in inventory building will likely help boost growth in the current quarter because it means that businesses may need to restock their supplies to meet demand.

With the wild swing between the first quarter’s sharp slump and the vigorous rebound in the second quarter, annual economic growth has averaged a meager 1.1 percent for the first six months of this year. Still, most analysts think the economy has regained momentum as the job market has strengthened. They foresee a healthy annual growth rate of about 3 percent in the current quarter and in the final three months of the year.

Economists also foresee the unemployment rate, now a nearly normal 6.2 percent, going even lower. An improving job market means rising household incomes, higher consumer confidence and more consumer spending. That is critical to growth because consumer spending accounts for more than two-thirds of economic growth.

Besides more jobs translating into more spending power, economists think other forces, such as business investment, stronger state and local finances and rising exports, will also support growth in coming months.

Al Jazeera and wire services