The US economy accelerated in the second quarter as consumers ramped up spending and businesses invested more on equipment, but persistent sluggish wage gains cast a dark shadow over the growth outlook.
Gross domestic product increased at a 2.6 per cent annual rate in the April-June period, which included a boost from trade, the Commerce Department said in its advance estimate on Friday. That was more than double the first quarter’s downwardly revised 1.2 per cent growth pace.
Wage growth, however, decelerated despite an unemployment rate that averaged 4.4 per cent in the second quarter. Inflation also retreated, appearing to weaken the case for the Federal Reserve to raise interest rates again this year.
“Although growth is solid, the lack of wage pressure buys the Fed plenty of time, and works with a very ‘gradual’ tightening cycle,” said Alan Ruskin, global head of G10 FX strategy at Deutsche Bank in New York. “There is more here for the Fed doves than the hawks.”
Prices of US Treasuries rose after the data but pared gains as oil prices hit two-month highs. The dollar fell against a basket of currencies and stocks on Wall Street were trading mostly lower following recent hefty gains.
Economists expect the Fed to announce a plan to start reducing its US$4.2 trillion portfolio of Treasury bonds and mortgage-backed securities in September.
