Economy grows faster than expected

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Politics,Business,Commerce,PennAve,Joseph Lawler,Economy,GDP,PoliticsToday

The economy is growing faster than previously thought.

U.S. gross domestic product grew at a 4.2 percent annual rate in the second quarter, the Bureau of Economic Analysis reported Thursday, an upward revision from the advance estimate of 4 percent released last month and better than Wall Street economists expected.

That is the fastest growth since the third quarter of 2013 and a massive turnaround from the first quarter's 2.1 percent contraction in GDP.

The BEA attributed the better-than-expected number to stronger business investment than first calculated. Overall, the quarter's fast growth was driven by strong consumer spending, exports, business investment, state and local government spending and housing.

Inventories, however, accounted for almost 1.4 percentage points of the growth rate. Spending on inventories generally is not predictive of economic growth, and some of the second-quarter inventory growth represents a snapback from the previous quarter, when businesses' inventories declined by more than a percentage point.

Thursday's report leaves GDP growth in line with economists' expectations that the economy will continue to gain strength throughout the year, shrugging off the first quarter.

Wall Street economists surveyed by the Federal Reserve Bank of Philadelphia project the economy to grow at a 3 percent rate in the third quarter and 3.1 in the fourth quarter. They then expect growth to come in at 3.1 percent for 2015, right in line with the Federal Reserve’s forecast.

It’s now likely that GDP growth will have slowed for three consecutive years. Real GDP grew 2.3 percent in 2012, 2.2 percent in 2013, and is projected to come in at 2.1 percent in 2014, as guessed by private economists, or 1.5 percent, as estimated by the Congressional Budget Office Wednesday.

The White House had predicted 3.1 percent growth for the year, which economists now view as unlikely given the deep hole created by the first-quarter decline.

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