U.S. economy back on track with strong second-quarter rebound

Wed Jul 30, 2014 4:29pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy rebounded sharply in the second quarter as consumers stepped up spending and businesses restocked, putting it on course to close out the year on solid footing.

Gross domestic product expanded at a 4.0 percent annual rate after shrinking at a revised 2.1 percent pace in the first quarter, the Commerce Department said on Wednesday.

The government previously had said the economy contracted at a 2.9 percent rate at the start of the year.

The second-quarter expansion was much stronger than the 3.0 percent economists had expected and added to manufacturing and services sector data in bolstering the outlook for the remainder of the year.

"Today's report shows greater near-term healing and momentum, reducing the downside risks and leaving us comfortable with our forecast for above 3.0 percent growth through next year," said Michelle Meyer, a senior economist at Bank of America Merrill Lynch in New York.

Despite the pickup, growth in the first half of the year badly lagged the economy's estimated 2 percent to 2.5 percent potential, a reminder that the nation's recovery from the worst recession since the 1930s remains the slowest on record.

A separate report showed private employers added 218,000 jobs to their payrolls this month, a decline from June's hefty gain of 281,000. Still, hiring remains solid and consistent with expectations for a stronger second half of the year.

Federal Reserve officials on Wednesday acknowledged the improvement in the economy, but cautioned that labor market slack remained considerable. The U.S. central bank, following the end of a two-day policy meeting, announced a further reduction to the amount of money it is injecting into the economy through monthly bond purchases.   Continued...

Inta Krueger shops for a refrigerator at a Sears store in Schaumburg, Illinois, near Chicago in this file photo taken September 23, 2013.  REUTERS/Jim Young/Files