Economy in U.S. expands 4.2%, more than previously forecast

The economy in the United States expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years that bodes well for the rest of 2014. More

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Economy in U.S. expands 4.2%, more than previously forecast

BLOOMBERG NEWS PHOTO/MIKE KANE
STRONG ORDERS FOR DURABLE GOODS, such as this Boeing 777 being built at the company's Everett, Wash., facility, helped the U.S. economy grow at a better than expected rate in the second quarter.
Posted 8/28/14

WASHINGTON - The economy in the United States expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years that bodes well for the rest of 2014.

Gross domestic product, the value of all goods and services produced, rose at a 4.2 percent annualized rate, up from an initial estimate of 4 percent and following a first-quarter contraction, Commerce Department figures showed Thursday in Washington, D.C. The median forecast of 77 economists surveyed by Bloomberg called for a 3.9 percent gain. Corporate profits climbed by the most in almost four years.

The improvement has carried over into the second half with companies such as General Electric Co. seeing more orders for equipment and a strengthening job market underpinning consumer spending, which accounts for about 70 percent of the economy. Better prospects for growth signal Federal Reserve officials will continue to wind down monthly asset purchases.

“The recovery is becoming more well-entrenched,” said Scott Brown, chief economist at Raymond James & Associates Inc. in St. Petersburg, Fla., who correctly projected the gain in GDP. “There is more optimism among businesses about increased demand. Ultimately, the Fed has to think seriously about the end game, though there is no need to hit the brakes any time soon.”

Economists’ estimates in the Bloomberg survey ranged from 3.5 percent to 4.3 percent.

Jobless claims

Another report today showed the number of Americans filing for unemployment benefits were little changed last week as employers held on to staff in an improving economy.

Claims decreased by 1,000 to 298,000 in the week ended Aug. 23 from 299,000 in the prior period, the Labor Department reported. The median forecast of 46 economists surveyed by Bloomberg called for an increase to 300,000.

Stock-index futures held earlier losses after the reports. The contract on the Standard & Poor’s 500 Index maturing in September declined 0.3 percent to 1,991 at 8:48 a.m. in New York as concern over Ukraine intensified.

The revisions to GDP showed the pickup in growth last quarter came from bigger gains in corporate spending on structures and equipment and a smaller trade deficit that was partly offset by more tepid inventory building.

Business investment increased at an 8.1 percent annualized rate, the most since the first three months of 2012.

Business spending

Companies are buying more equipment as earnings improve. Today’s report also offered a first look at corporate profits. Before-tax earnings rose 8 percent last quarter, the most since the third quarter of 2010, after a 9.4 percent drop in the prior period. They were still down 0.3 percent from the same time last year.

Corporate investment data are indicating a pickup. A surge in demand for airplanes helped push orders for durable goods up at a record pace in July, boosting prospects for sustained growth in manufacturing, a report showed on Aug. 26. Bookings for goods meant to last at least three years soared 22.6 percent after a revised 2.7 percent gain in June.

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