The economy in the U.S. grew more than projected in the second quarter, showing it is overcoming the cuts in government spending and higher taxes.
Gross domestic product, the value of all goods and services produced, rose at a 1.7% annualized rate after a 1.1% gain the prior quarter that was smaller than previously estimated, Commerce Department figures showed today in Washington. Other reports showed hiring and manufacturing accelerated this month.
The GDP figures showed companies invested in new equipment and construction projects, and a pickup in orders for durable goods indicates the gains will be sustained into the second half of the year. The effects of government budget cuts will probably wane, while job gains and rising home and stock prices are shoring up consumer sentiment, making it more likely households will regain momentum after spending cooled last quarter.
“The worst of the fiscal drag is now behind us,” said Maury Harris, the New York-based chief economist for UBS Securities LLC and the best GDP forecaster over the past two years, according to data compiled by Bloomberg. “Business confidence is recovering and capital expenditures are recovering.” Harris projected growth will accelerate to about 3% in the last six months of 2013.
Federal Reserve policy makers said today at the conclusion of their two-day meeting that “economic growth will pick up from its recent pace and the unemployment rate will gradually decline.” The Federal Open Market Committee also said it will maintain its $85 billion in monthly bond purchases aimed at stoking the expansion and boosting employment.
The Fed may begin tapering the pace of its asset purchases in September, according to a growing number of economists surveyed by Bloomberg from July 18 to July 22.
Companies boosted payrolls in July by the most this year as employers grew more optimistic demand will pick up, another report showed. Employment increased by 200,000 following a 198,000 gain in June that was higher than initially estimated, according to data from the ADP Research Institute in Roseland, New Jersey. The median forecast of 40 economists surveyed by Bloomberg called for a July advance of 180,000.
Stocks extended gains after the Fed said it will maintain record monetary stimulus. The Standard & Poor’s 500 Index climbed 0.3% to 1,690.65 at 2:14 p.m. in New York. Treasury securities slumped, pushing the yield on the benchmark 10-year note up to 2.64% from 2.61% late yesterday.