US economic growth prospects lifted

Hopes the US can maintain the rate of its economic recovery were buoyed yesterday as the government announced better than expected 4% growth in the second quarter.

The figure, combined with five successive months of stronger job creation, will fuel positive sentiment around the US’ recovery.

The strong GDP performance was driven by a 2.5% jump in consumer spending – which makes up more than two thirds of the American economy – and an increase in business inventories.

The US Commerce Department also revised a decline in first quarter GDP to 2.1% from its previous estimate of a 2.9% fall.

The more positive news on growth came as the Federal Open Market Committee concluded its two-day meeting by saying it will continue to reduce or “taper” its bond-buying stimulus programme by $10bn (£6bn) a month with a relatively upbeat assessment of the US economy, but repeated it will not rush to increase interest rates.

“The increase in real GDP… primarily reflected positive contributions from personal consumption expenditures, private inventory investment, exports, non-residential fixed investment, state and local government spending, and residential fixed investment,” a Commerce Department spokesperson said.

Even allowing for the fact that business inventories contributed 1.66% of the 4% growth – seen as unlikely to be repeated – and the expectation that the second quarter GDP figure will be revised, the general reaction to yesterday’s updates was positive.

“The back revisions to the US quarterly GDP data tie in more closely with the high frequency figures, such as jobless claims, suggesting the US economy did not suffer as much in the spring and has a reasonable degree of positive momentum into the summer,” said Andrew Milligan, head of global strategy at Standard Life Investments.

The Commerce Department also revised GDP data back to 1999, showing that the US economy was slightly stronger in 2013 than it previously reported.

The ADP private sector payrolls survey, published yesterday, said 218,000 jobs were created in July. The official US government July jobs data is released tomorrow.