US economy grows at 1.7% in Q2

The US economy has registered a better than expected 1.7-per cent growth in the second quarter on an annualised basis, according to advance estimate released by the US commerce department yesterday.

The GDP growth was well above the revised estimate of 1.1 per cent for the first quarter. The earlier figure for Q1 was 1.8 per cent. Compared to the first quarter, the Q2 GDP grew 0.4 per cent.

The economic expansion in the second quarter was primarily due to increases in personal consumption, exports, residential investment and private inventory. These were partly offset by negative contributions from federal government spending and imports.

Personal consumption expenditures recorded a 1.8-per cent increase in the second quarter compared with an increase of 2.3 per cent in Q1, contributing 1.22 per cent to the GDP.

Overall goods increased 3.4 per cent compared with 3.7 per cent in the first quarter while durable goods increased 6.5 per cent from 5.8 per cent. Growth in services was lower at 0.9 per cent, compared with an increase of 1.5 per cent in Q1.

Private domestic investment was up 9 per cent in the second quarter from 4.7 per cent in Q1, contributing 1.34 per cent to the GDP. Residential investment grew 13.4 per cent from 2.5 per cent accounting for 0.38 per cent of the GDP. Private inventories contributed 0.41per cent to the GDP.

Exports improved 5.4 per cent during the quarter in contrast to a 1.3 per cent decrease in the previous quarter, accounting for a contribution of 0.71 per cent to the GDP.

Imports rose 9.5 per cent in Q2, compared with 0.6 per cent in Q1, making a negative contribution of 1.51 per cent to the GDP.

The federal government spending declined 1.5 per cent in the second quarter, compared with a decline of 8.4 per cent in the first, making a negative impact of 0.12 per cent on the GDP.

Defence purchases were marginally down by 0.5 per cent in Q2 compared to an 11.2-per cent decrease in the March quarter, subtracting 0.02 per cent of the GDP.

The second GDP estimate for the quarter based on more complete data will be out on 29 August.

Simultaneously, the commerce department has revised the growth figures for the past several decades with a positive twist, for improving the accuracy of the estimates.

The 2012 GDP was now 2.8 per cent, up from its previous estimate of 2.2 per cent. The growth for 2011 was unrevised at 1.8 per cent while the 2010 GDP was revised to 2.5 per cent from 2.4 per cent.

During the recession from Q4 2007 to Q2 2009, the GDP decreased at a less severe annual rate of 2.9 per cent against the previous estimate of 3.2 per cent. The cumulative decrease, estimated not on annual basis, was 4.3 per cent from the earlier figure of 4.7 per cent.

For the period of subsequent expansion to the first quarter of 2013, the average GDP growth was 2.2 per cent, a sight improvement from the earlier estimate of 2.1 per cent.

Earlier this week, the International Monetary Fund (IMF) in its periodic review of the US economy anticipated a slower growth for the country's economy in the second quarter. (See: US economic recovery `tepid': IMF).

''The expiration of the payroll tax cut and implementation of across-the-board spending cuts are weighing significantly on growth this year,'' the report had said.

According to the IMF, the country is expected to post a 1.7 per cent growth this year, which will accelerate to 2.7 per cent next year as effects of the powerful internal and external headwinds subside gradually. The continuing recession in Europe and a slowdown in emerging markets including China are having negative impacts on growth.

In a key policy meeting yesterday, the US Federal Reserve has said that it would continue to buy $85 billion in bonds per month to stimulate growth and has left the key interest rates at near-zero level.

In comparison, the UK economy has expanded 0.6-per cent in the second quarter over the first quarter with all the major components registering positive growths. (See: UK GDP growth quickens to 0.6% in Q2)

The eurozone's growth figures are expected later this month. The bloc's economy contracted 0.2 per cent in the first quarter, its sixth quarter of recession.