Economy in U.S. grows more than forecast as stockpiles climb

Comprehensive Revision

The Commerce Department also issued comprehensive revisions with today’s report that showed the recovery from the worst U.S. recession in the post-World War II era has been stronger than previously estimated. It’s also been more uneven. The updates affected data back to 1929.

The economy expanded 1.4% in the second quarter from the same time in 2012 compared with a 1.3% year-to-year gain in the previous three months.

A gain in stockpiling in the second quarter boosted second- quarter growth by 0.4 percentage points. Most economists had projected inventories would subtract from GDP. Business investment and housing also boosted the economy.

The gain in household consumption, which accounts for about 70% of the economy, compared with a 1.6% median forecast in the Bloomberg survey. Purchases added 1.2 percentage point to growth.

Domestic final sales -- which strip out inventories, exports and imports -- increased 1.3% after rising 0.2% in the first quarter.

Payroll Tax

Some of the slowdown in consumption may have been the lingering effect of the payroll tax, which reverted to its 2010 rate of 6.2% in January after holding at 4.2% for two years, resulting in lower take-home pay.

Another round of fiscal tightening started taking effect in March with the $85 billion in automatic across-the-board federal spending cuts known as sequestration.

Today’s report showed government spending fell at a 0.4% annualized rate. State and local outlays increased at a 0.3% rate, while spending by federal agencies dropped at a 1.5% pace.

Corporate spending on equipment climbed at a 4.1% annualized pace. A new category that reflects outlays on computer software and other intellectual property such as research and development and some forms of entertainment rose at a 3.8% pace.

The trade deficit widened, subtracting 0.8 percentage point from GDP growth.

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