The US economy had faster growth than previously estimated in the second quarter, setting a record of its quickest pace in more than two years. But the momentum probably slowed as Hurricanes Harvey and Irma temporarily curbed the activity.
Gross domestic product increased at a 3.1% annual rate in the April-June period, according to the Commerce Department in a statement in its third estimate on Thursday. The upward revision from the 3.0% growth rate reported last month reflected a slightly faster pace of inventory investment.
Growth in the last quarter was the fastest since the first quarter of 2015 and followed a 1.2% pace in the January-March period. Economists had expected that the second-quarter GDP rate of growth would be unrevised at 3.0%.
Hurricane Harvey, which struck Texas, has been the cause of blame for much of the decline in retail sales, industrial production, homebuilding and home sales in August. Further weakness is expected in September after Hurricane Irma slammed into Florida earlier this month.
However, rebuilding is expected to boost GDP growth in the fourth quarter as well as in early 2018. The estimated growth rate in the Jule-September is just above 2.2%.
However, they could rise after another report from the Commerce Department on Thursday showed a decline in the goods trade deficit in August as well as large increases in both retail and wholesale inventories.
Hurricanes Harvey and Irma are continuing to impact the labour market and are expected to cut into job growth this month. In a third report, the Labor Department said that initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 272,000 for the week ended September 23rd.
However, the labour market still remains strong. Claims have now been below the 300,000 thresholds, which is associated with a robust labour market, for 134 straight weeks. That is the longest stretch since 1970 when the labour market was smaller.
Prices for US Treasuries held losses after the data and the dollar .DXY fell to a session low against a basket of currencies. US stock index futures were trading lower.
Robust Consumer Spending
With GDP increasing quickly in the second quarter, the economy grew by 2.1% in the first half of 2017. Still, economists expect that growth this year will not breach President Donal Trump's ambitious 3.0% target goal.
On Wednesday, Trump proposed the biggest US tac overhaul in three decades. This included lowering the corporate income tax rate to 20% and implementing a new 25% tax rate for pass-through businesses like partnerships to boost the economy.
However, the plan gave few details about how the tax cuts would be paid for without increasing the budget deficit and national debt, setting up what is expected to be a bruising battle in the US Congress.
Growth in consumer spending, which makes up more than two-thirds of the US economy, was unrevised at a 3.3% rate in the second quarter as an increase in spending on services was offset by a downward revision to durable goods outlays. Consumer spending in the second quarter was the fastest in a year.
Amongst robust consumer spending, businesses accumulated a bit more inventory that reported previously to meet the strong demand. Inventory investment added just over one-tenth of a percentage point to GDP growth in the second quarter. It was previously reported to have been neutral.
At the fastest pace in nearly two years, growth in business spending on equipment was unchanged at a rate of 8.8%.
U from the previously reported 6.2 percent rate, investments of nonresidential structures was revised to show it increasing at a 7.0 percent pace.
Both import and export growth was revised a bit lower. Trade contributed two-tenths of a percentage point to GDP growth last quarter. Housing was a slightly bigger drag on growth in the last quarter that reported previously, subtracting 0.3 percentage point from the output.
In addition, the government sharply revised down growth in corporate profits for the second quarter. Profits after tax with inventory valuation and capital consumption adjustments increased at a 0.1% rate instead of the previously reported 0.8% rate.