Consumer spending bolsters US second quarter growth

(MENAFN- Arab News) WASHINGTON: US economic growth accelerated in the second quarter as solid consumer spending offset the drag from weak business spending on equipment suggesting a steady momentum that could bring the US Federal Reserve closer to hiking interest rates this year.
Gross domestic product expanded at a 2.3 percent annual rate the Commerce Department said. First-quarter GDP previously reported to have shrunk at a 0.2 percent pace was revised up to show it rising at a 0.6 percent rate.
The revision to first-quarter growth reflected steps taken by the government to refine the seasonal adjustment for some components of GDP which economists said left residual seasonality in the data as well as new source data.
The Fed on Wednesday described the economy as expanding 'moderately' while upgrading its view of the labor market and saying housing had shown 'additional' improvement. The Fed's assessment left the door open for a possible hike in interest rates in September.
A separate report showed first-time applications for state unemployment benefits increased 12000 last week to a seasonally adjusted 267000. However claims remained not too far from their cycle lows.
Though second-quarter GDP growth was a bit below economists' expectations for a 2.6 percent rate the growth composition pointed to firming domestic fundamentals.
Growth in the second quarter was boosted by consumer spending as households used some of the windfall from cheaper gasoline in late 2014 and early this year to go shopping. The strengthening labor market also encouraged consumers to loosen their purse strings.
Consumer spending which accounts for more than two-thirds of US economic activity grew at a 2.9 percent rate from a downwardly revised 1.8 percent pace in the first quarter. Consumer spending was previously reported to have increased at a 2.1 percent rate at the start of the year.
However the energy sector continued to weigh on growth as it struggles with the lingering effects of deep spending cuts by oil-field companies like Schlumberger and Halliburton in the aftermath of a more than 60 percent plunge in crude oil prices last year.