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U.S. economy rebounds sharply in Q2, registers 4 percent growth

The economy takes a sharp turn in the second quarter on the back of strong consumer spending and a revival in exports.
By Ananth Baliga   |   July 30, 2014 at 12:46 PM  |  Updated July 30, 2014 at 1:05 PM   |   Comments

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WASHINGTON, July 30 (UPI) -- The U.S. economy registered a sharp rebound in growth, after experiencing a contraction during the winter months, growing by 4 percent from April to June.

The U.S. Commerce Department reported the better-than-expected growth numbers Wednesday, which show that the economy is bouncing back from the 2.1 percent contraction seen from January to March. The Commerce Department had earlier estimated a 2.9 percent contraction for the first three months of the year.

Economists expected the economy to improve from its dismal performance earlier in the year and estimated a 3 percent increase in the GDP. Despite the strong second-quarter numbers, the economy grew only 1 percent for the first six months of the year.

"Some of the past quarter's growth performance reflects a catch-up from the dismal first-quarter performance," said Gad Levanon, director of macroeconomic and labor market research at the Conference Board.

Growth was boosted this quarter by increased consumer spending, which grew 2.5 percent compared to 1.2 percent in the previous quarter. Investments also increased 5.5 percent after a meager 1.6 percent increase in the first quarter.

A major revival was seen in exports, which grew 9.5 percent in the second quarter after contracting 9.2 percent in the first quarter.

Economists and observers attributed the first-quarter contraction to the bad weather and expected a turnaround to begin in the spring.

"The really ugly GDP report for the first quarter was likely the result of mostly one-off events," said Bob Baur, chief global economist for Principal Global Investors.

The Fed will end its two-day meeting Wednesday and is expected to announce a $10 billion reduction to its program, leading to its eventual closure this fall. The good numbers could result in a quicker end to its program, which was used to help boost the economy in the aftermath of the financial crisis.

While growth has been good this quarter, annually the economy is expected to grow by only 1.7 percent, according to the International Monetary Fund. This would weigh heavily on the Fed's decision to increase short-term interest rates, which have been at near-zero levels since the financial crisis in 2008.

In the past, the Fed said it will look closely at growth numbers, unemployment and the inflation rate when determining when to increase interest rates.

Follow @antbaliga and @UPI on Twitter.
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Topics: Gad Levanon
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