WASHINGTON The U.S. economy grew faster in the second quarter than was previously estimated without causing inflation to pick up, government figures showed.
Gross domestic product, the sum of all goods and services produced in the United States, grew at a 5.6% annual rate in the quarter, the Commerce Department said in its final estimate. The first-quarter pace was 4.8%.
That exports grew faster and imports slower was the main reason the government revised the second-quarter domestic product rate from the 5.3% reported last month.
Consumer spending grew at the slowest pace in three years. That, and inflation at less than 2.5%, is why analysts say the Federal Reserve will not increase interest rates when its policymakers meet Tuesday.
This is a tremendous amount of momentum, said Richard Yamarone, a senior economist at Argus Research Corp. in New York. Inflation remains a no-show. I dont think the Fed is worried.
Initial jobless claims fell by 24,000 last week to a two-month low of 287,000, the Labor Department said in a separate report. If claims continue at that level, with unemployment nearing a three-decade low at 4.1%, companies could be pressed to raise wages to attract workers and then pass along the costs to consumers. Productivity advances have thus far kept prices under control.
The domestic product deflator, a broad measure of inflation tied to the report, rose at a 2.4% annual rate in the second quarter, the Commerce Department said. That is slower than the previously estimated 2.6% rate and the 3.3% rate of the first quarter. The personal consumption expenditures price index, a measure watched by the Fed, rose at a 2.1% annual pace, down from a prior estimate of 2.3% and a 3.5% rate in the first quarter.
Another inflationary threat higher oil prices diminished today after Saudi Arabia said it was willing to increase its petroleum output. Crude oil for November delivery fell almost 2% to a six-week low of $30.85 a barrel. Prices are still 28% higher than a year ago.
And according to analysts consensus forecast, U.S. companies will report profit growth of 16% in the third quarter. That would be the smallest gain in more than a year, and the result of higher energy prices as well as a strong dollar.