US economy grows at a faster clip, beats estimates

WASHINGTON: The biggest gain in US business investment in over two years helped the world’s largest economy expand more than previously forecast in the second quarter, raising expectations for the rest of 2014.
Gross domestic product, the value of all goods and services produced, rose at a 4.2% annualised rate, up from an initial estimate of 4% and following a first-quarter contraction, the US Commerce Department reported on Thursday in Washington.

Other reports showed the outlook for home sales improved in July, fewer people filed claims for jobless benefits last week and consumer confidence climbed.

Recent data showing American factories are receiving more orders and employment is picking up indicate companies such as General Electric will probably see demand sustained into the second half of the year.

Better growth prospects and little sign of inflation signal Federal Reserve officials can wind down monthly asset purchases while keeping interest rates low.

“The recovery is becoming more well entrenched,“ said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida, who correctly projected the gain in GDP.

“There is more optimism among businesses about increased demand. Ultimately, the Fed has to think seriously about the end game, though there is no need to hit the brakes any time soon.“

Stocks dropped as concern over the Ukraine crisis overshadowed the improving economic data.

The Standard & Poor's 500 Index declined 0.2% to 1,995.96 at 11 a.m. in New York. The yield on the benchmark 10-year Treasury note fell to 2.33% from 2.36% late Wednesday .

The number of Americans filing for unemployment benefits was little changed last week as employers held on to staff in an improving economy , figures from the Labour Department showed.

Claims decreased by 1,000 to 298,000 in the week ended August 23. The readings are hovering around the lowest levels of 2007, before the last recession began. The drop in firings is probably helping Americans feel more secure in their jobs.

The revisions to GDP showed the pickup in growth last quarter came from bigger gains in corporate spending on structures and equipment and a smaller trade deficit that was partly offset by more tepid inventory building.

Stripping out inventories and trade, the two most volatile components of GDP, so-called final sales to domestic purchasers increased 3.1%, up from a previously reported 2.8% gain and the biggest advance in four years.

Business investment increased at an 8.1% 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% last quarter, the most since the third quarter of 2010, after a 9.4% drop in the prior period. They were still down 0.3% 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.