US Q2 GDP growth revised slightly higher

[WASHINGTON] The US economy grew a bit faster than initially thought in the second quarter, lifting the level of gross domestic product above its pre-pandemic peak, as massive fiscal stimulus and vaccinations against Covid-19 boosted spending.

Gross domestic product increased at a 6.6 per cent annualised rate, the Commerce Department said on Thursday in its second estimate of GDP growth for the April-June quarter. That was revised up from the 6.5 per cent pace of expansion reported in July.

Economists polled by Reuters had expected that second-quarter GDP growth would be raised to a 6.7 per cent pace.

The economy grew at a 6.3 per cent rate in the first quarter, and has recouped the steep losses suffered during the two-month Covid-19 recession.

The upward revisions to last quarter's GDP growth reflected a much more robust pace of consumer spending than initially estimated. The government disbursed one-time stimulus checks to some middle and low-income households during the quarter.

The Federal Reserve has maintained its ultra easy monetary policy stance, keeping interest rates at historically low levels and boosting stock market prices.

Consumer spending, which accounts for more than two-thirds of the US economy, also got a lift from vaccinations, which fuelled demand for services like air travel, hotel accommodation, dining out as well as entertainment.

But momentum appears to have slowed early in the third quarter amid a resurgence new Covid-19 infections driven by the Delta variant of the coronavirus.

Persistent bottlenecks in the supply chain are also causing shortages of goods like motor vehicles and some household appliances, hurting retail sales. Credit card data suggests spending on services like airfares, cruises as well as hotels and motels has been slowing.

New orders for non-defence capital goods excluding aircraft were flat in July.

"This is a speed bump due to the interaction of Delta and supply-side constraints," said Michelle Meyer, chief US economist at Bank of America Securities in New York. "We still believe the foundation for the economy is solid and all signs point to strong underlying demand."

Bank of America Securities has slashed its GDP growth estimate for third quarter to a 4.5 per cent pace from a 7.0 per cent rate.

Economists at Goldman Sachs last week cut their growth estimate for this quarter to a 5.5 per cent rate from a 9 per cent pace.

Growth is expected to pick up in the fourth quarter.

Overall, economists expect growth of around 7 per cent this year, which would be the strongest performance since 1984.

Though the boost from fiscal stimulus is waning, consumer spending remains underpinned by a strengthening labour market.

REUTERS