US economy beats estimate with 4.2pc growth

PUBLISHED : Friday, 29 August, 2014, 9:27am
UPDATED : Friday, 29 August, 2014, 9:38am

After a bleak start to the year, the United States economy grew at a brisk annual rate of 4.2 per cent in the April-June quarter, slightly faster than first estimated.

The upward revision supported expectations that the second half of 2014 would prove far stronger than the first.

The commerce department’s second estimate of growth for last quarter followed its initial estimate of 4 per cent. The upward revision reflected stronger business investment than first thought.

The seasonally adjusted 4.2 per cent annual growth rate for gross domestic product came after the economy had shrunk at a 2.1 per cent annual rate in the January-March quarter. That was the economy’s biggest drop since the depths of the recession, and it reflected mainly the effects of a harsh winter that kept consumers away from shopping malls and disrupted factory production.

Many economists say they expect growth of about 3 per cent in the current July-September quarter and for the rest of the year.

The government’s upwardly revised estimate of business investment last quarter showed capital spending growing at an annual rate of 8.4 per cent last quarter. That was sharply higher than the government’s initial 5.5 per cent estimate.

“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, Channel Islands.

Economists worry that any of several political hotspots, from Ukraine to Israel to Iraq, could erupt in a way that would destabilise US 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 consecutive month of 200,000-plus job growth. Those gains have averaged 244,000 a month since February, the best six-month string in eight years.

Economists also foresee the unemployment rate, now a nearly normal 6.2 per cent, 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.