U.S. Economy Rebounds in Q2; GDP Grows by 4 percent

The Commerce Department said this morning that the American economy expanded at an annual rate of 4 percent in the second quarter of 2014 after contracting by more than 2 percent in the first three months of the year.

The 4 percent growth rate was above economists’ expectations of around 3.2 percent.

Main drivers of the expansion included a robust increase in consumer spending at 2.5 percent –more than double the growth rate in the weather-impaired first quarter – and soaring dividend payments from record highs on the stock market. Investment in residential housing increased at a 7.5 percent rate and business spending on capital assets grew 7 percent.

In addition to the larger than expected measure for Q2, the Commerce Department announced an unusual revision to the previously announced figures from Q1 to -2.1 percent growth from -2.9 percent. Typically, the last revision of any quarter’s change in GDP is the third number, released about three months after the close of the quarter. But this is the fourth number released for Q1 as government economists had a difficult time estimating economic activity due to abnormally cold conditions in much of the U.S. in Q1.

The 4 percent growth rate for Q2 2014 is the fastest rate since Q3 2013 and only the fifth quarterly expansion at 4 percent or above in the past 10 years.

Along with faster growth, however, came increased inflation. The report noted that the price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 1.9 percent in the second quarter, compared with an increase of 1.4 percent in the first. Excluding highly volatile food and energy prices, the price index for gross domestic purchases increased 1.7 percent, compared with an increase of 1.3 percent.