US Q2 GDP growth revised up, fastest in over 2 years

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US economy in the second quarter grew faster than initially thought, notching its quickest pace in more than two years, and there are signs that the momentum was sustained at the start of the third quarter.

Gross domestic product increased at a three-percent annual rate in the April-June period, the Commerce Department said in its second estimate on Wednesday. The upward revision from the 2.6-percent pace reported last month reflected robust consumer spending as well as strong business investment.

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Growth last quarter was the best since the first quarter of 2015 and followed a 1.2-percent pace in the January-March period. Economists had expected that second-quarter GDP growth would be raised to a 2.7-percent rate.

Retail sales and business spending data so far suggest the economy maintained its stamina early in the third quarter. Economists saw a limited impact on growth from Hurricane Harvey, which devastated parts of Texas.

“The impact on the national economy will be minor,” said Gus Faucher, chief economist at PNC Financial Services in Pittsburgh. “While some output will be lost in the wake of the storm, most of the difference will be made up in the months ahead.”

Growth estimates for the third quarter are as high as 3.4 percent. Other data on Wednesday showed private employers ramped up hiring in August, adding 237,000 jobs to their payrolls. That was up from 201,000 jobs in July.

The ADP National Employment Report was released ahead of the government’s more comprehensive employment report on Friday, which is expected to show solid job gains in August and diminishing labor market slack.

The dollar firmed against a basket of currencies, while prices for US Treasuries fell. US stocks rose.

Strong growth and a labor market that is near full employment support views the Federal Reserve will announce a plan to start unwinding its 4.2 trillion US dollars portfolio of Treasury bonds and mortgage-backed securities next month and increase interest rates in December.

With GDP quickening in the second quarter, the economy grew by 2.1 percent in the first half of 2017. While that was up from the 1.9 percent reported last month, economists said it was unlikely growth this year would breach Republican President Donald Trump’s ambitious three-percent target.

“Underlying domestic demand in the economy is consistent with nearly three-percent growth but the supply-side of the economy is not capable of delivering such a pace of growth at this point,” said John Ryding, chief economist at RDQ Economics in New York.

The Trump administration is targeting tax cuts, deregulation and infrastructure spending to boost growth. However, it has so far failed to pass any economic legislation and is yet to articulate plans for tax reform and infrastructure.

Source(s): Reuters