GDP rebounds in the second quarter

July 30, 2014

Good news: the economy bounced back last quarter. In fact, after a terrible first quarter in which the economy contracted at a 2.1 percent rate, GDP rebounded to grow at a 4 percent annual rate between April and June.

The news was a beat — expectations were only for 3 percent growth. However, the average growth rate of the economy over the last few years still hovers around 2%, as you can see in this chart:

REUTERS / S Culp

Here are more details from Reuters, including how this might affect the Fed’s decision about when to raise interest rates:

The GDP data, which was released only hours before Federal Reserve officials conclude a two-day policy meeting, could fuel debate on whether the central bank may need to raise interest rates a bit sooner than had been anticipated.

Growth in the second quarter was driven mainly by consumer spending and a swing in business inventories.

Consumer spending growth, which accounts for more than two-thirds of U.S. economic activity, accelerated at a 2.5 percent pace, as Americans bought long-lasting manufactured goods and spent a bit more on services.

Consumer spending had braked to a 1.2 percent pace in the first quarter because of weak healthcare spending.

Despite the pick-up in consumer spending, Americans saved more in the second quarter. The saving rate increased to 5.3 percent from 4.9 percent in the first quarter as incomes rose, which bodes well for future spending.

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