The U.S. economy takes a greater uptrend in the second quarter of 2015

The U.S. economy takes a greater uptrend in the second quarter of 2015

The U.S. economy expanded at a faster pace than initially thought in the second quarter as businesses ramped up investment but also built up inventories, offering mixed signals for growth prospects the rest of the year

GDP Gross domestic product, the broadest sum of goods and services produced across the economy, expanded at a 3.7% seasonally adjusted annual rate in the second quarter of 2015, the Commerce Department said August 27, 2015, that is up from the initial estimate of 2.3% growth.

The economy appears to be following a similar pattern to 2014, with a stumble at the start of the year followed by a relatively strong rebound. But the overall story has been one of modest growth, with full-year GDP advancing from 1.5% to 2.4% each of the past four years.

The latest GDP numbers offer a backward view of the economy, of course, detailing a three-month stretch that ended in June. Concerns about China have since buffeted global markets and introduced greater uncertainty into forecasts for the U.S. economy. But economists and policy makers will examine the latest numbers closely for clues on what factors may be adding to growth in the current quarter.

The second-quarter boost was broad-based, led by upward revisions for business investment, inventories, government spending, consumer spending and a downward revision for imports.

The latest figures on business investment—reflecting spending on construction, equipment, and research and development—are especially welcome. The category rose at a 3.2% pace, compared with an earlier estimate of a 0.6% decline, suggesting a degree of optimism about future demand.

Stronger balance sheets may have helped. Corporate profits after tax, without inventory valuation and capital consumption adjustments, rose at a 5.1% pace from the first quarter, the biggest jump in a year. On a year-over-year basis, corporate profit growth was 7.3%.

That measure of corporate profits most closely matches what companies report in earnings statements. Profit data isn’t inflation adjusted.

But companies also added to stockpiles, an accumulation of goods that is unlikely to continue into the current quarter. Real private inventories increased at $121.1 billion pace in the second quarter, adding 0.22 percentage point to GDP. Commerce initially said inventories were a small drag on growth.

Economists don’t expect businesses will continue to run up inventories, one factor moderating third-quarter forecasts.

Real final sales—GDP minus change in private inventories—advanced 3.5%, compared with an earlier estimate of 2.4%. The figure roughly measures the value of U.S.-made goods and services people and companies purchased at home and abroad.

Elsewhere, the report offered signs of healthier growth that may or may not carry over into the third quarter.

Consumer spending, representing more than two-thirds of economic output, grew at a 3.1% rate in the second quarter, compared with the initially reported 2.9%. The new reading is a marked improvement from the first quarter’s 1.8%, a possible sign of improving consumer confidence amid steady hiring and lower gasoline prices.

Spending on home building and improvements advanced at a 7.8% pace, compared with a previous reading of 6.6% and a first-quarter gain of 10.1%.

April and May construction data were revised up after Commerce’s first take on GDP and reached the highest level in seven years in June. More recent housing numbers have continued to show strength, with July single-family housing starts and existing home sales both touching new postrecession highs.

Exports of goods and services rose 5.2% in the second quarter while imports grew 2.8%. Net exports contributed 0.23 percentage point to GDP, only the second time since the start of 2014 that trade hasn’t been a drag on top-line economic growth.

Government spending rose 2.6% in the second quarter, compared with an earlier estimate of a 0.8% gain. The latest reading is the biggest jump in government expenditures and investment—federal, state and local—since 2010.

GDP measures have been heavily revised in recent quarters, making the data more difficult to interpret. In the first quarter, the government initially said the economy advanced at 0.2% pace, revised that to a 0.7% contraction and finally recast the figure to a 0.6% advance.

Further revisions for the second quarter are possible on Sept. 25, when the Commerce Department releases its third update for GDP.

Meanwhile, Federal Reserve officials will weigh the latest hard data against volatility in markets as they consider raising the central bank’s benchmark interest rate for the first time since 2006.

Fed officials next meet September 16-17. Before China-related concerns fully emerged, many economists had expected a small rate increase at that gathering. Now, the timing is more in doubt and officials appear cautious.

“I really do hope we can raise interest rates this year,” Federal Reserve Bank of New York President William Dudley told reporters Wednesday. “Let’s see the data unfold before we make any statements when that might occur.”

In June, Fed officials forecast GDP growth from 1.8% to 2% for the full year.

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