The gross domestic product grew at an annual rate of 1.7 percent, hardly indicative of an economic boom, let alone enough to bring down elevated levels of unemployment soon. It is also the third quarter in a row in which growth failed to top 2 percent, the average since the recession ended in 2009.
Still, the increase was an acceleration from growth in the first quarter of 2013, which was revised downward to 1.1 percent from an earlier estimate of 1.8 percent by the Bureau of Economic Analysis.
“It was a reasonable performance,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “In the long run, it’s not enough, but I’ll take growth wherever I can get it.”
The economy’s trajectory is being closely watched by the Federal Reserve as it determines whether to ease its huge stimulus efforts. Fed policy makers will conclude a two-day meeting on Wednesday and issue their latest statement on the economy early Wednesday afternoon.
On Wall Street, stocks rose modestly as traders readied for the Fed announcement, watching closely for any change in the language of the statement that might indicate the central bank’s course.
Many economists had anticipated growth of below 1 percent in the second quarter, as automatic spending cuts imposed by Congress and higher taxes that went into effect this year began to bite.
Federal spending did decline by 1.5 percent in the second quarter, but the drop was not as severe as the falloff in government spending in earlier quarters. Exports rose 5.4 percent, reversing a decline in the first quarter.
Most experts predict growth will pick up in the second half of 2013 as the drag from the federal spending cuts and higher taxes begins to fade.
“On balance it was a positive report showing a healthier economy than previously believed,” said Michelle Meyer, senior United States economist at Bank of America Merrill Lynch. “But growth has slowed in the past few quarters, reflecting fiscal tightening in Washington.”
The chairman of the Federal Reserve, Ben S. Bernanke, has hinted the Fed will soon begin winding down part of its extensive bond purchases aimed at stimulating the economy, but the timing is uncertain.
On Wall Street, analysts and traders are speculating that the Fed could start tapering as early as September if the economy enjoys healthier growth and the job situation improves, or it could be delayed to December or beyond on evidence of weakness.
While the Federal Reserve is not expected to announce a change in policy later in the day Wednesday, the economic data in the second quarter paints a more vigorous picture than anticipated and may increase the odds that the Fed will taper sooner rather than later.
Indeed, there were pockets of strength in Wednesday’s data from the Bureau of Economic Analysis. For example, residential fixed investment increased by 13.4 percent, a sign the housing sector continues to recover. Personal consumption rose 1.8 percent, as consumers showed some resiliency, especially given the increase in payroll taxes at the beginning of 2013.
The reason government spending stabilized last quarter, rather than falling sharply, was that military spending flattened out, said Steve Blitz, an economist with ITG.
After falling 21.6 percent in the final quarter of 2012, and another 11.2 percent in the first quarter of 2013, military spending last quarter barely budged, sinking just 0.5 percent. One factor that makes Mr. Blitz more optimistic about growth in 2014 “is the presumption that most of the military wind-down will have been completed.”
Higher inventories, always a volatile component of economic reports, added 0.41 percentage point to overall growth. But analysts cautioned that inventory estimates were often adjusted as more data came in, raising the possibility that second-quarter growth could be revised downward in the future.
More clues about the economy’s performance will come on Friday when the Labor Department reports on monthly job creation and the unemployment rate. Economists estimate the economy created 185,000 jobs in July, according to a Bloomberg survey, a bit below the 195,000 level in June, with the unemployment rate falling to 7.5 percent, from 7.6 percent.
The latest data come as the government performed its first comprehensive revision in how the economy is measured since July 2009.
As a result, the estimated growth in 2012 was actually healthier than originally thought. Last year’s annual rate of growth in economic output was revised upward to 2.8 percent, from 2.2 percent. The government also slightly adjusted the estimate of the severity of the recession from 2007-9, saying that the economy contracted at an annual rate of 2.9 percent, instead of 3.2 percent.
In a separate report on Wednesday, Automatic Data Processing reported that private sector employers added 200,000 jobs in July, a bit stronger than analysts had been expected. While the A.D.P. report doesn’t always align with the broader figures released by the Labor Department, the figure was interpreted as another positive sign.
ADP also increased its original estimate of the number of private sector jobs added in June to 198,000 from 188,000.
One puzzle for economists is why job creation has been healthier than economic growth would indicate. For example, the economy added an average of 183,000 jobs a month last year, a figure more consistent with 2.5 to 3 percent growth. But Maury Harris, chief United States economist at UBS, noted that the 2012 G.D.P. figures were revised upward, helping to explain the higher job creation numbers.
Article source: http://www.nytimes.com/2013/08/01/business/economy/us-economy-grew-by-1-7-in-2nd-quarter-faster-than-expected.html?partner=rss&emc=rss