U.S. gross domestic product grew at a 3.7 percent annual rate in the second quarter, the Bureau of Economic Analysis reported Thursday.
Inflation-adjusted GDP, a measure of economic output, was revised upward from the 2.3 percent rate previously estimated by the Bureau, by more than investors expected.
The second estimate included more complete data than the first, and showed business investment and inventories growing instead of shrinking.
The second quarter was a significant improvement over the first, when output grew by a meager 0.6 percent. That disappointing result was, at the time, discounted by government economists as the result of one-off factors unlikely to weigh on growth the rest of the year.
Thursday’s report appears to have vindicated that view and eliminated the possibility that the U.S. economy is tipping into recession. Including the revisions, the pick-up in the quarter was driven by growth in consumer spending, home building, and additions to inventories. State and local government spending also surged 4.3 percent, accounting for 0.46 percentage points of the 3.7 percent growth rate.
Trade also placed less of a drag on growth in the second quarter, after the dollar surged earlier in the year amid economic weakness overseas. Exports grew 5.2 percent after shrinking even faster in the previous quarter, and imports, which count against GDP, slowed to 2.8 percent growth, down from 7.1 percent in the first quarter.
Thursday’s encouraging headline growth of 3.7 percent, however, may have overstated the economy’s strength in the quarter. Gross Domestic Income, another measure of output calculated from income rather than spending, was clocked at a much slower 0.6 percent annual rate. The Bureau of Economic Analysis now includes a statistic that averages out GDP and GDI, to present a metric of growth thought to be more reliable than either measure taken on its own. That average showed just a 2.1 percent growth rate in the quarter.
The report and other data “show the economy despite all its volatility is still locked on the same shallow growth path that has been in place for the past several years,” noted Mizuho Securities chief economist Steven Ricchiuto in a note on GDP.
Thursday’s release is the second estimate of real GDP growth published by the Bureau. The third and final estimate will be released on Sept. 25.
A model maintained by the Federal Reserve Bank of Atlanta based on the most current economic data shows third-quarter growth checking in at 1.4 percent.
In their most recently released projections, members of the Federal Reserve expected growth for the year to total 1.8 percent to 2 percent.
