The economy grew at an annual rate of 1.7 percent in the second quarter, an increase from the first part of the
year and well ahead of the pace economists expected.
Workers on the assembly line at a General Motors plant in Kansas City, Kan., early this year.
The growth rate for the first quarter, however, was revised downward by the Bureau of Economic Analysis, to 1.1 percent from 1.8 percent.
The resilience in the second quarter came despite higher taxes and as automatic spending cuts imposed this year by Congress took effect. Federal spending decreased 1.5 percent in the April-June quarter. That decline came after an 8.7 percent drop in federal spending in the first quarter, and a 14.8 percent fall in the fourth quarter of 2012.
Since the end of the recession in 2009, the economy has grown at annual rate of about 2 percent. Economists surveyed before the announcement estimated that the economy would record growth of just under 1 percent in the second quarter.
Most experts predict growth will pick up in the second half of 2013, as the drag from the federal spending cuts and higher taxes begins to fade.
The economy — and whether it will pick up speed or remain sluggish — is being closely watched by policy makers at the Federal Reserve, which will issue its latest statement on Wednesday afternoon.
The chairman of the central bank, Ben S. Bernanke, has hinted that the Fed will soon begin winding down part of its extensive bond purchasing program aimed at stimulating the economy, but the timing is uncertain. On Wall Street, analysts and traders are speculating the Fed could start tapering as early as September if the economy enjoys healthier growth and the job situation improves, or it could be delayed to December or beyond on evidence of weakness.
While the Federal Reserve is not expected to announce a change in policy, the economic data in the second quarter paints a more vigorous picture than anticipated and may increase the odds that the Fed will taper sooner rather than later.
Indeed, there were pockets of strength in Wednesday’s data from the Bureau of Economic Analysis. Residential fixed investment, for example, increased 13.4 percent, a sign the housing sector continues to recover. Personal consumption rose 1.8 percent, as consumers showed a measure of resiliency. Spending on durable goods increased 6.5 percent.
More clues about the economy’s performance will come Friday, when the Labor Department reports on monthly job creation and the unemployment rate. Economists estimate the economy created 185,000 jobs in July, according to a Bloomberg News survey, a bit below the 195,000 level in June, with the unemployment rate falling to 7.5 percent, from 7.6 percent.
Courtesy: NY times