Building trades key expansion

The world’s largest economy expanded more than previously forecast in the second quarter, boosted by gains in consumer spending and construction that may help the U.S. withstand a global slowdown.

Gross domestic product rose at a 3.9 percent annualized rate, compared with a prior estimate of 3.7 percent, Commerce Department figures showed Sept. 25 in Washington. The median forecast of 76 economists surveyed by Bloomberg called for a 3.7 percent gain.

Strong hiring, cheaper gasoline and higher home prices will probably sustain household purchases, which account for about 70 percent of the economy. That helps bolster Federal Reserve Chair Janet Yellen’s view that the U.S. will overcome any fallout from cooling overseas markets and swings in global financial and commodity markets.

“Declining energy prices have been a big support, and that was a big windfall for consumers,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, who correctly projected the second-quarter expansion. “We’ve been growing above trend, and we think that’ll probably continue for at least the third and fourth quarters.”

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Economists’ forecasts for GDP, the value of all goods and services produced, ranged from 2.7 percent to 4.1 percent.

The upward revision was driven mainly by a bigger pickup in consumer spending and business investment in commercial and residential construction.

The economy rebounded after growing at a 0.6 percent pace from January through March amid harsh winter weather, a labor dispute at West Coast ports and a pullback in energy-industry investment after the plunge in oil prices.

The latest estimate is the third for the quarter and the reading won’t be updated again until annual revisions are issued in July 2016.

Household consumption was revised to a 3.6 percent gain compared with an initial estimate of 3.1 percent, and followed a 1.8 percent advance from January through March. The Bloomberg survey median called for a second-quarter advance of 3.2 percent.

A strong job market and cheap gasoline are sustaining the momentum in spending, helping to boost housing and autos. Industry data showed sales of cars and light trucks climbed in August to the highest level in a decade.

The University of Michigan’s final consumer-sentiment index for the month decreased to 87.2, the lowest level since October, from 91.9 in August. The median projection in a Bloomberg survey called for 86.5, compared with a preliminary September reading of 85.7.

Among other details, business investment climbed at a 5.2 percent annualized pace, compared with a prior estimate of 4.1 percent. Investment in nonresidential structures, including office buildings and factories, rose 6.2 percent, the most in more than a year.

Residential construction increased at a 9.3 percent rate, up from a previous estimate of 7.8 percent.

Corporate spending on equipment and software eked out a tiny gain last quarter, and recent data indicate it could pick up.

The biggest obstacle for the economy is the need to reduce bloated inventories. Stockpiles in the first two quarters of the year showed the biggest back-to-back gain since records began in 1947.

The need to cut stocks is the main reason economists project growth will slow for the third quarter. GDP is forecast to expand at a 2.4 percent rate, according to the median forecast of economists surveyed by Bloomberg from Sept. 4 to Sept. 9.

Fed Chair Yellen said recently that she is ready to raise interest rates this year and intends to let the labor market run hot for a time to heal the lingering scars of the worst recession since the Great Depression. •

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