US GDP grows 3.4 percent in second quarter

Advance estimates for the US economy in the second quarter show real GDP growth of 3.4 percent, slower than the 3.8 percent growth in the first quarter but within economists' expectations.

Reuters reports:

The U.S. economy grew at a solid 3.4 percent annual rate in the second quarter, setting the stage for steady second-half expansion as inventories fell and Midwest manufacturing picked up, government and industry reports on Friday showed.

The quarterly report on gross domestic product, or GDP, showed core inflation well contained but analysts said there was enough price pressure after nine quarters of growth exceeding 3 percent to keep U.S. interest rates on the rise.

A price index based personal consumption expenditures rose at a 3.3 percent rate that topped the first quarter's 2.3 percent. However, when food and energy were stripped out...the rate of price rises slowed to 1.8 percent in the second quarter from 2.4 percent...

The strong second-quarter GDP performance followed a 3.8 percent growth rate in the first quarter and reflected well-balanced strength in consumer spending, business investment and exports... [C]onsumer spending increasing at a 3.3 percent rate after growing at a 3.5 percent rate in the first quarter. Business investment advanced at a 9 percent rate after growing 5.7 percent in the first three months of the year.

Companies drew down inventories at a $6.4 billion annual rate during the second quarter -- the first time they reduced stocks since the second quarter of 2003.

Responses to the figures, as compiled by AP, were positive.

"The economy is rolling along like a freight train. High energy prices are less of a drag than what many people had feared," said Ken Mayland, president of ClearView Economics...

[P]aring of inventories set the stage for replenishing them in the July-to-September quarter, which would add to economic growth, economists said. "That leaves the economy well positioned for another strong quarter," said Sherry Cooper, chief economist at BMO Nesbitt Burns...

"This is not an overly exuberant economy but one that is growing at a real nice pace," said David Kelly, economic adviser at Putnam Investments.

Other indicators reported in the Reuters story also suggest good growth ahead.

Separately, the Labor Department reported that employment costs continued to gain moderately in the second quarter, by 0.7 percent, matching the first quarter's pace... [P]ay increased 0.6 percent in the April-June period, matching the gain recorded in the January-March quarter...

Another gauge of economic activity in the industrial Midwest -- the Chicago Purchasing Management Index -- posted a sharp jump in July to 63.5 from 53.6 in June. Every one of its separate measures, from new orders to current production levels, strengthened in July.

A University of Michigan consumer confidence index rose modestly to a 2005 high of 96.5, implying consumers are likely to keep adding their purchasing punch to the economy.

With such strong data, it is not surprising that Fed officials are saying that there is no clear end to Fed tightening in sight. Tim Duy agrees.