US economy accelerates in Q2; hurricanes to slow growth

WASHINGTON: The US economy expanded a bit faster than previously estimated in the second quarter, recording its quickest rate of growth in more than two years, but the momentum likely slowed in the third quarter due to the impact of Hurricanes Harvey and Irma.
Gross domestic product increased at a 3.1 per cent annual rate in the April-June period, the Commerce Department said in its third estimate on Thursday. The upward revision from the 3.0 per cent rate of growth reported last month reflected a rise in inventory investment.
“The destruction caused by Hurricanes Harvey and Irma and the resulting disruption… are expected to be a drag on third-quarter growth,” said Jim Baird, chief investment officer at Plante Moran Financial Advisors in Kalamazoo, Michigan. “Nonetheless, the economy remains on track.”
Economic growth last quarter was the quickest since the first quarter of 2015 and followed a 1.2 per cent pace in the January-March period. Economists estimate that Harvey and Irma, which struck Texas and Florida, could cut as much as six-tenths of a percentage point from GDP growth in the third quarter. Harvey was blamed for much of the decline in retail sales, industrial production, homebuilding and home sales in August. Further weakness is anticipated in September because of Irma.
Rebuilding efforts are, however, expected to boost GDP growth in the fourth quarter and in early 2018. Signs of increasing inventory investment by businesses could soften the storms’ punch to the economy.
In a separate report on Thursday, the Commerce Department said wholesale inventories jumped 1.0 per cent in August after rising 0.6 per cent in July. Inventories at retailers shot up 0.7 per cent after being unchanged in July. The department also said the goods trade deficit fell 1.4 per cent to $62.9 billion in August.
That leaves an upside risk to growth estimates for the July-September quarter, which are below 2.5 per cent.
Harvey and Irma continue to impact the labour market and are expected to cut into job growth this month. In a third report, the Labor Department said initial claims for state unemployment benefits increased 12,000 to a seasonally adjusted 272,000 for the week ended September 23.
Still, the labour market remains strong. Claims have now been below the 300,000 threshold, which is associated with a robust labour market, for 134 straight weeks. That is the longest such stretch since 1970, when the labour market was smaller.
Economists had expected that the second-quarter GDP growth rate would be unrevised at 3.0 per cent.
Prices for longer-dated US Treasuries were trading lower and the dollar slipped against a basket of currencies. Stocks on Wall Street were mixed.
Growth in consumer spending, which makes up more than two-thirds of the US economy, was unrevised at a 3.3 per cent rate in the second quarter as an increase in spending on services was offset by a downward revision to durable goods outlays.
Amid robust consumer spending, businesses accumulated a bit more inventory than previously reported 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.
Growth in business spending on equipment was unchanged at a rate of 8.8 per cent, the fastest pace in nearly two years. Investment on nonresidential structures was revised to show it increasing at a 7.0 per cent pace, up from the previously reported 6.2 per cent rate. — Reuters