US economic growth was revised higher again in the second quarter of the year. The third estimate of GDP growth in the second quarter was revised up from 3.7% to 3.9% on an annualized basis. This comes after the second estimate was revised higher from 2.3% to 3.7% back in August. Forecasts were for GDP growth to stay unrevised.
The upward revision was attributed mainly to stronger consumer spending but higher construction also drove growth during the period. Personal consumption expenditure was revised up from 3.1% to 3.6% as consumers benefited from cheaper gasoline prices, higher employment and rising house prices. Residential construction jumped by 9.3% during the quarter, while non-residential construction rose by 4.1%.
Other factors that boosted growth in the second quarter were an improved trade balance helped by higher exports and slowing imports, as well as higher state and local government spending.
Disposable personal income growth slowed to 1.2% in the second quarter after rising by 3.9% in the first quarter. The core PCE price index, which excludes food and energy, was revised higher to 1.9% from 1.8% on an annualized basis.
The revised figures make the case for a rate hike even stronger as it confirms that US growth momentum is being sustained by strong personal spending. With employment continuing to grow strongly, consumer spending is unlikely to falter anytime soon.
Speaking in Missouri today, St. Louis Fed President James Bullard said it would be prudent to start normalizing rates soon but that Fed policy is expected to remain accommodative even after a rate hike. This echoes what other Fed officials have been communicating in recent days, including Fed Chair Janet Yellen who yesterday gave the strongest indication yet that rates are likely to rise before the end of the year.
The dollar initially rose on the strong GDP figures but soon started to head lower on profit taking before recovering somewhat. The greenback jumped to a 2-week high 121.23 of against the yen before plunging to 120.49 yen. It later bounced back slightly to 120.72 yen in late European session. The euro recovered from 1.1124 dollars to around 1.1175 dollars. The pound stood at 1.5200 dollars, having hit a day’s low of 1.5151 dollars.