US raises growth estimate to 4.2% following strong second quarter

Thursday 28 August 2014 14.30
US economic activity has picked up in recent months following a sluggish start to the year
US economic activity has picked up in recent months following a sluggish start to the year

The US Commerce Department has raised its estimate for economic growth to 4.2%, confirming the solid rebound from the first quarter's steep contraction.

The department said a fuller set of data showed a higher level of fixed investment by companies and the government, contributing to the 0.2 point upward revision from July's number.

The 4.2% annual pace in the April-June period followed a 2.1% contraction in the first quarter, the consequence mainly of unusually severe winter storms that had battered the eastern half of the United States, depressing economic activity.

In the second quarter, the revised data showed pickups in consumer spending and business investment, and improved government spending and home building.

On the other hand, gross domestic product was dampened by an increase in imports, not surprising given the rebound in activity after the first quarter, analysts say.

The new report left its key inflation indicator unchanged: the price index for gross domestic purchases stayed at 1.9%, up from 1.4% in the first quarter.

The threat, or lack of, inflation has been key to debates over whether the country’s Federal Reserve needs to tighten monetary policy sooner rather than later to prevent price increases from getting out of hand.