US economy growth estimate revised up from 4.2% to 4.6%

The US economy grew by an annualised 4.6 per cent in the second quarter of this year, compared with an earlier estimate of 4.2 per cent, as evidence builds of a more robust recovery this year.

It is the second upward revision following an initial estimate of 4 per cent.

It shows how strongly the economy bounced back after shrinking in the first quarter due to bad weather.

Momentum

Although the latest release concerns growth almost three months ago, it suggests the economy had more momentum heading into the second half of the year than previously thought, and is on the roughly 3 per cent growth path forecast by many US Federal Reserve officials.

"This was the fastest quarterly rate since 2011, confirming that the US economy bounced back strongly from the weather-related setback in the first quarter," said Joseph Lake, US analyst for the Economist Intelligence Unit. The single biggest source of upward revisions was investment, which added an extra 0.2 percentage points to growth, most of it from business spending on new buildings.

Exports

Another 0.1 percentage points came from exports. There was a 0.4 percentage point upward revision to healthcare consumption – which has been hard to measure this year because of the impact of president Barack Obama’s Affordable Care Act – but it was offset by downward revisions to recreation and other services.

The pattern of revisions is encouraging because it points to stronger underlying demand in the economy.

Despite the strength of the second quarter, the 2.1 per cent annualised fall in the first quarter means that even with strong growth during the rest of the year, the outcome for 2014 overall will be disappointing. – (Copyright The Financial Times Limited 2014)