U.S. GDP speeds up to 2.6% in 2nd quarter MARKETWATCH 9:08 AM ET 7/28/2017 Consumers lead the way as businesses take a back seat
WASHINGTON (MarketWatch)--Americans got out and spent more in the spring, nursing the U.S. economy back to health after a feeble start to the year.
The official scorecard for economy, known as gross domestic product, grew at an annual rate of 2.6% in the second quarter, the government said Friday (https://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm). Economists polled by MarketWatch had forecast a 2.8% increase.
The rebound in GDP more than doubled up on a revised 1.2% pace of growth in the first quarter, suggesting the early- year slowdown largely reflected seasonal quirks such as poor weather and late tax refunds.
The economy has expanded for eight straight years in the wake of the 2007-09 recession, energized by the strongest labor market in years. The U.S. has added 16.6 million new jobs since 2010 to drive the unemployment rate down to a nearly 16-year low of 4.4%.
The pace of job growth also suggests that the economy isn't demonstrating signs of deterioration.
A vibrant labor market has raised incomes for millions, enabled more Americans to buy homes and fed steady demand for business goods and services. The economy is forecast to grow 2.7% in third quarter.
Following the GDP report, the stock market held on to modest losses, with the Dow Jones Industrial Average, S&P 500 index and the Nasdaq Composite Index set to fall at the open, based on futures (http://www.marketwatch.com/story/us- tech-stocks-shape-up-for-another-day-of-selling-after-amazon-disappoints-2017-07-28)action (http://www.marketwatch.com/ story/us-tech-stocks-shape-up-for-another-day-of-selling-after-amazon-disappoints-2017-07-28).
Inside the report
The economy got a big boost from a rebound in consumer spending, the largest source of the nation's economic growth.
Spending rose 2.8% in the second quarter as Americans bought more groceries and clothes and paid more for health care. They spent less on new cars and trucks, however.
A smaller lift came from business. Companies increased investment in equipment such as computers by 8.2%, though spending on structures such as oil rigs and offices grew more slowly.
Businesses increased fixed investment just 2.2% in the spring, however, after a 8.1% gain in the first quarter, when enthusiasm for the new pro-business Trump administration may have triggered a jump in corporate spending.
Reflecting their caution, U.S. corporations also reduced inventories for the second quarter in a row. The value of newly produced but unsold goods slipped by $2.6 billion in a bit of a surprise.
Home builders, for their part, scaled back investment by the most in seven years after piling money into new properties for two quarters in a row. Residential investment sank 6.8%.
Although demand is strong, builders face an array of obstacles in constructing enough new homes to keep up.
Government spending, a laggard during most of the recovery, rose again after declining in the first quarter.
U.S. trade relations with other countries, meanwhile, also gave a slight boost to second-quarter GDP. Exports rose twice as fast as imports: 4.2% vs. 2.1%.
Inflation slowed to an annual rate of 0.3% in the second quarter from 2.2% in the first, as measured by the personal- consumption expenditures price index, or PCE. Price pressures eased sharply in the spring after a rapid buildup in late 2016 and early 2017. The PCE index is the Federal Reserve's preferred method of gauging inflation.
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