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Economy expanded by 2.5 percent in 2nd quarter, government says

By Shobhana Chandra
Bloomberg News

The economy expanded at a faster pace in the second quarter from the previous three months, a sign the U.S. was weathering federal budget cutbacks and higher taxes.

Gross domestic product rose at a 2.5 percent annualized rate, unrevised from the previous estimate, after expanding 1.1 percent in the first quarter, Commerce Department figures showed in a report issued Thursday in Washington. The median forecast of economists surveyed by Bloomberg was a 2.6 percent pace.

Bigger gains in hiring and worker pay are needed to propel consumer spending, the largest part of the economy, analysts say.

Federal Reserve policymakers, who last week decided to maintain $85 billion in monthly bond buying, are seeking more evidence of lasting improvement in the expansion before trimming the stimulus.

“It’s slow and steady improvement in the economy,” said Gennadiy Goldberg, a strategist at TD Securities USA LLC in New York. “We haven’t seen enough acceleration in momentum. The Fed wants to see more vigorous growth.”

A separate report Thursday from the Labor Department showed the number of Americans filing applications for unemployment benefits unexpectedly declined last week, signaling further progress in the job market.

Jobless claims decreased by 5,000 to 305,000 in the week ended Sept. 21. The median forecast of 49 economists surveyed by Bloomberg called for an increase to 325,000.

Consumer spending climbed 1.8 percent, the revised data showed.

State and local government outlays increased at a 0.4 percent annualized rate, compared with a previously reported 0.5 percent drop.

Trade became a drag on the economy as exports grew at a slower pace, while inventories contributed less to growth than previously reported. The trade gap and inventories are two of the most volatile components in GDP calculations.

At the same time, residential construction increased at a 14.2 percent annualized rate, faster than the 12.9 percent pace previously reported.

Rising real estate values and stock market gains are boosting Americans’ wealth, which will help sustain consumption. Net worth for households and nonprofit groups climbed by $1.34 trillion in the second quarter, or 1.8 percent from the previous three months, to $74.8 trillion, Fed data showed in a Wednesday report.

Automobiles remain a bright spot. Cars and light trucks sold at a 16 million annualized rate in August, the fastest since November 2007, figures from Ward’s Automotive Group showed.

Domestic final sales — which strip out inventories, exports and imports — increased 2.1 percent compared with a previously estimated gain of 1.9 percent.


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