Economic Watch: Second Quarter Economic Growth Surges to 4.6% Pace

The American Economy expanded at an annual rate of 4.6% in the second quarter of the year, up from two previous U.S. Commerce Department estimates of 4.2% last month and 4% in July.

This revision to the gross domestic product shows the economy rebounded at its fastest pace in two and a half years and compares to a decline in the first quarter at an annual rate of 2.1%.

“The increase in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures, exports, private inventory investment, nonresidential fixed investment, state and local government spending, and residential fixed investment,” the department said in a release. “Imports, which are a subtraction in the calculation of GDP, increased.”

Exports in the second quarter were revised upward from a 10.1% increase to an 11.1% gain while government spending was also revised higher to 1.7% from a 1.4% hike. In contrast, consumer spending was unchanged at a 2.5% increase for the quarter.

“Whether we are talking about 4.2 or 4.6%, the storyline for the first half of the year remains unchanged. After a significant decline in the first quarter, growth rebounded markedly in the second-quarter resulting in an average pace of near 1%,” said Lindsey Piegza, chief economist at the investment firm Sterne Agee. “The question is what does this tell us about growth going forward?”

She noted business spending gained significant momentum in the second quarter, a trend that has carried over into the third quarter, and will likely to contribute markedly to third-quarter growth.

“However, the consumer remains lackluster, restrained by tepid income growth. While lower gas prices will help provide a floor to near-term spending, rising inventory to sales ratios suggest the consumer has not been able to properly absorb the massive production increases,” Piegza said. “In other words, while top-line growth in third quarter may be better-than-expected thanks to heighten spending in the corporate sector, this morning's report confirms the consumer remains under pressure, spending at levels far below the near 4% pace at the end of 2013.”

She said a weaker consumer will eventually “force producers to ratchet down production and eat through rising stockpiles of goods, resulting in a contraction in growth down the road.”