The US economy in the second quarter grew at the fastest pace in more than a year as core inflation rose at its slowest pace in four years, the Commerce Department reported today.
The department estimated the economy grew at a 3.4 per cent annualised rate between April and June, slightly faster than the 3.2 per cent economists were predicting.
"It is generally good economic news, but not foolproof evidence of sustained growth that the market currently desires," said Stephen Gallagher at Societe Generale.
The Fed's preferred measure of inflation, the core PCE price index, rose 1.4 per cent in the second quarter, down sharply from the 2.4 per cent rise in the prior quarter and the slowest pace since the second quarter of 2003.
Overall consumer inflation, measured by the PCE price index including food and energy prices, rose 4.3 per cent. That was the fastest pace in a year and reflected rapid increases in gasoline and food prices.
The second quarter growth story was mostly about rebounds. 'The second quarter bounce partly reflects an offset to weakness in a number of GDP components in the first quarter,' said economists at Briefing.com.
An increase in inventories, higher exports, and a reduced drag on the economy from a weak housing sector contributed to the economy's faster growth.
The housing drag was cut almost in half as real residential fixed investment fell "only" 9.3 per cent, compared to the 16.3 per cent drop in the first quarter.
There was a bigger boost from business investment, especially construction, as real non-residential fixed investment rose 8.1 per cent, almost quadruple the 2.1 per cent pace in the first quarter.
Business inventories weren't quite the growth factor economists were looking for but they were up $3.6 billion after no increase in the first quarter.