US economy expands by 4.2% following contraction

The US economy expanded more than previously forecast in the second quarter, propelled by the biggest gain in business investment in more than two years that bodes well for the rest of 2014.

Gross domestic product, the value of all goods and services produced, rose at a 4.2 per cent annualised rate, up from an initial estimate of 4 per cent and following a first-quarter contraction, according to the latest figures.

Corporate profits climbed by the most in almost four years. The improvement has carried over into the second half with companies such as General Electric seeing more orders for equipment and a strengthening job market underpinning consumer spending, which accounts for about 70 per cent of the economy.

Better prospects for growth signal Federal Reserve officials will continue to wind down monthly asset purchases. “The economy is clearly doing better,” Jim O’Sullivan, chief US economist at High Frequency Economics in Valhalla, New York, said before the report.

“Business spending is picking up. We’ll see stronger consumer spending in coming months.”

Another report today showed the number of Americans filing for unemployment benefits were little changed last week as employers held on to staff in an improving economy. Claims decreased by 1,000 to 298,000 in the week ended August 23rd from 299,000 in the prior period, the Department of Labor reported.

Business investment increased at an 8.1 percent annualised rate, the most since the first three months of 2012. Companies are buying more equipment as earnings improve. Today’s report also offered a first look at corporate profits. Before-tax earnings rose 8 per cent last quarter, the most since the third quarter of 2010, after a 9.4 per cent drop in the prior period. They were still down 0.3 per cent from the same time last year.

Corporate investment data are indicating a pickup. A surge in demand for airplanes helped push orders for durable goods up at a record pace in July, boosting prospects for sustained growth in manufacturing,

- Bloomberg