The widest measure of the health of the American economy was revised higher for the second quarter of the year, hitting its best pace in two years, while separate reports show hiring and consumers' feeling about the economy remain strong.
The Commerce Department reported Wednesday that the nation’s gross domestic product (GDP), increased at an annual rate of 3% in April through June-- that's up from a 2.7% rate reported a month earlier.
The latest measure of the total output of goods and services is the strongest pace since the first quarter of 2015 and is better than many analysts were expecting. It follows a 1.2% rate in the first quarter of 2017.
This also inches the GDP rate higher for the first half of the year, hitting 2.1% in this latest report as opposed to 1.9% reported earlier.
The second quarter increase in the GDP reflected positive contributions from personal spending, nonresidential fixed investment, exports, federal government spending, and private inventory investment, according to the department. These were partly offset by negative contributions from residential fixed investment and state and local government spending. Imports, which are a subtraction in the calculation of GDP.
“If not for the uncertain impact of [Hurricane] Harvey, we would be tempted to raise our current 2.4% estimate for third quarter GDP growth,” said Sal Guatieri, senior economist at BMO Financial Group. “On a yearly basis, growth of 2.2% is in line with the post-recession norm, and, importantly, still above potential, implying further downward pressure on the jobless rate.”
Private Sector Employment Keeps Booming
The report was released the same day as one from payroll processor ADP that showed non-farm private sector employment increased by 237,000 jobs from July to August.
This is the highest level since March, when 255,000 such jobs were added. Also, The July total of jobs added was revised upward from 178,000 to 201,000.
“In August, the goods-producing sector saw the best performance in months with solid increases in both construction and manufacturing,” said Ahu Yildirmaz, vice president and co-head of the ADP Research Institute. “Additionally, the trade industry pulled ahead to lead job gains across all industries, adding the most jobs it has seen since the end of 2016. This could be an industry to watch as consumer spending and wage growth improves.”
The report was released two days before official federal employment and umemployment figures are to be released on Friday.
Consumer Confidence: Second Highest Since 2000
Both reports come on the heels of one showing that consumer confidence in the U.S remains high, at its second best level this month since 2000 and better than Wall Street advance estimates.
The private research group The Conference Board said its Consumer Confidence Index, which had increased in July, improved further in August. The Index now stands at 122.9 up from 120 the month before and well above last year’s average of 99.8.
The Present Situation Index increased from 145.4 to 151.2, while the Expectations Index rose marginally from 103 last month to 104..
“Consumers’ more buoyant assessment of present-day conditions was the primary driver of the boost in confidence, with the Present Situation Index continuing to hover at a 16-year high, said Lynn Franco, Director of Economic Indicators at The Conference Board. "Consumers’ short-term expectations were relatively flat, though still optimistic, suggesting that they do not anticipate an acceleration in the pace of economic activity in the months ahead.”
Consumers’ appraisal of current conditions improved further in August while consumers’ assessment of the labor market was also more upbeat. In contrast, consumers’ optimism about the short-term outlook was relatively flat in August while their outlook for the labor market was also mixed.
The survey of consumers was completed on Aug 16, nearly 10 days before Hurricane Harvey hit the Texas Gulf Coast, causing widespread flooding. As a result, don’t be surprised to see the index fall in September, according to Mark Vitner, senior economist at Wells Fargo Securities.
“In the month following Hurricane Katrina, the index tumbled 18 points. That said, the hit to confidence was relatively short lived,” he said. "Within five months, the consumer confidence index rebounded to its pre-Katrina level. While it is still too early to tell the extent of the damage done by Hurricane Harvey, we expect continued strength in the labor market to help overcome the near term setbacks related to the storm.”