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US grows 4% in Q2 as economy bounces back

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  • 30/07/2014
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US GDP growth has risen more than expected in Q2, according to initial estimates, with the contraction in the first quarter less bad than had been feared.

The 4% figure is above consensus expectations of an annualised 3% growth rate. The 2.9% Q1 contraction, meanwhile, was revised down to 2.1%.

Revisions to older data showed the economy grew 4% in the second half of 2013, the best six-month performance for a decade.

The US Bureau of Economic Analysis said the rise reflected “positive contributions from personal consumption, private inventory investment, exports, non-residential fixed investment, state and local government spending, and residential fixed investment,” set against a weather-affected first quarter.

“These GDP figures firmly put to bed fears that Q1’s drop was a sign of structural weakness,” said Nancy Curtin, CIO of Close Brothers Asset Management (pictured).

“It’s clear that growth in the US has stepped up a level, and we expect to see this continue throughout Q3. These improved numbers as already being reflected in a better earnings trajectory and we expect more of this as the year progresses.”

The positive numbers look set to give hawkish members of the Federal Reserve further impetus to argue for interest rate rises, but Curtin said Fed chair Janet Yellen (pictured) would remain resolute in her desire to keep rates lower for longer.

“While the rapid economic improvement may crank up the pressure on Yellen to bring forward interest rate normalisation, especially if non-farm payroll figures consistently beat expectations, investors shouldn’t expect a sudden change of tack,” she said.

“Yellen has continually reiterated that any interest rate rise will be data-dependent, and steady rather than drastic.

“With wage growth and inflation her key concerns at present, we will not see any tangible form of tightening until these indicators also consistently point to a self-sustaining recovery.”

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