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Ahead of the Bell: Economy-GDP

31 August 2017

US second-quarter growth was revised upward to the fastest pace in two years on stronger household spending and a bigger gain in business investment, putting the economy on a stronger track, Commerce Department data showed Wednesday.

The U.S. economy grew at an annualized rate of 3 percent in the second quarter, up from the first estimate of 2.6 percent, according to the Department of Commerce. GDP has averaged annual growth rates of just 2.2 percent in this recovery, which is now the third longest in USA history.

This is the fastest quarterly growth rate in more than two years.

Inflation as measured by the Fed's preferred PCE index decelerated sharply to a 0.3% gain in the second quarter down from a 2.2% increase in the first quarter.

The economy picked up from a 1.2% rate in the first quarter.

In the government's second revision, released Wednesday, Q2 GDP rose to 3% from 2.6% reported initially.

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During the 2016 election, then-presidential candidate Trump pledged to bring manufacturing sector jobs back to the United States and focus on improving the country's economy. Both consumer spending and business investment are likely to sustain weaker performance as a result, but most of the drag is likely to come from net exports - with refined product exports hard hit given the outages of Gulf Coast refineries and ports shuttered.

It will take more than one quarter's data for the White House or congressional Republicans to be able to claim credit for lifting the economy's growth trajectory. But the current devastation in Southeast Texas is expected to impact the third quarter economic growth, with economic activity significantly disrupted in the Houston, Victoria, and Corpus Christi metro areas. "All of those things weighed on US growth". That's still well under the Federal Reserve's desired inflation rate in a range of 2.0% to 2.5%.

That was revised up from the 2.8 percent pace reported in July and accounted for the bulk of the pickup in economic growth in the second quarter.

Yet there is little sign of this denting business or consumer confidence with the GDP figures, added to retail sales, business spending and jobs survey data for the early part of the third quarter, painting a positive picture.

For the second quarter, the government estimated that consumer spending grew at a 3.3 per cent rate, the best showing in a year and up from an initial estimate of 2.8 per cent growth.

Consumer spending powered the second-quarter surge, rising a revised 3.3% compared to the government's original estimate of a 1.9% gain.

Ahead of the Bell: Economy-GDP