US economy seems to be picking up steam

Economic Indicators , USA Sep 29, 2014 No Comments

US economy seems to pick up steamThe Commerce Department on Friday raised its estimate of growth in gross domestic product to a 4.6 percent annual rate from the 4.2 percent pace reported last month. The best performance since the fourth quarter of 2011 reflected a faster pace of business spending and sturdier export growth than previously estimated.

The United States economy’s bounce-back last quarter from a dismal winter was even faster than previously thought, a sign that growth will likely remain solid for the rest of the year. It grew at its fastest pace in 2-1/2 years in the second quarter with all sectors contributing to the jump in output in a bullish signal for the remainder of the year.

Chris Williamson, chief economist at Markit, said: “The impressive gain in the second quarter looks to be far more than just a weather-related upturn, with evidence pointing to an underlying buoyant pace of economic expansion. Survey data in particular indicate that strong growth has persisted throughout the third quarter.”

He said the strong data would further fuel expectations that the US Federal Reserve might start to raise interest rates sooner than mid-2015, but added it was unlikely at the moment.

The stronger growth estimate was largely due to brisker business investment. Such spending rose 9.7%, up from the 8.4% previously believed as companies built more factories and purchased more equipment.

Companies flush with cash are growing more confident about spending it after a two-year budget bill rates by Congress early this year temporarily resolved long-standing partisan battles and repeated threats of a government shutdown. Corporate profits are also healthy, rising 8.4% in the second quarter, the most since the third quarter of 2010. Profits fell 9.4% in the first quarter.

Also, exports surged 11.1% vs. the previous 10.1% estimate. “International trade will be driving much of the quarter-to-quarter volatility through at least 2015, with declining growth in exports and stronger growth in imports,” said Doug Handler, chief US economist at IHS Global Insight. “This is due to a strong US economy and the recent and expected additional appreciation in the dollar.”

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was unrevised as stronger healthcare outlays were offset by weaknesses in recreation and durable goods spending. However, U.S. consumer sentiment rose to a 14-month high in September as American’s outlook for the overall economy improved, with the final reading of the consumer sentiment index in September edging up to 84.6 from 82.5 in August, according to the monthly Thomson Reuters/University of Michigan survey of consumers.

“Consumer confidence posted a healthy September gain due to more favorable prospects for the domestic economy as well as more favorable personal income expectations,” the survey’s director Richard Curtin said in a statement.

Unemployment is a key concern for the Fed. Although the jobless rate has dropped to 6.1 percent and job creation has picked up, a large number of people are out of the job market or underemployed, and wages have remain relatively flat since the severe recession ended in mid-2009.

The report signaled the economy entered the third quarter with solid momentum, although recent indicators have shown some activity cooling, particularly in the housing market.

Pascal Blanc

Pascal has implemented numerous software solutions in the areas of procurement, sourcing, spend management, supplier evaluation and performance. His clients include Fortune 500 companies in Europe, Asia and North America. He is a co-founder of Source & Procure.

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