WASHINGTON -- The economy as measured by gross domestic product grew at a 4.6 percent annual rate in the April-June quarter as companies stepped up investment and households increased spending, the Commerce Department said Friday.
It was the fastest pace in more than two years and higher than the government's previous estimate of 4.2 percent.
Steady job growth has kept Americans spending, and companies seem to be a bit more upbeat about the prospects for demand.
"We definitely see momentum" in the U.S. economy, said Brittany Baumann, an economist at Credit Agricole CIB in New York. "Consumer spending should benefit from strengthening labor conditions and improved financial conditions," while business investment should also continue, she said.
The healthy second-quarter growth marked a sharp rebound from the January-March quarter, when the economy shrank at a 2.1 percent rate in the midst of a brutal winter that idled factories and kept consumers at home.
As the third quarter nears an end, economists envision a strengthening economy through the end of 2014 and into 2015. Many think the economy is growing in the current July-September quarter at a rate of around 3 percent.
Sal Guatieri, senior economist at BMO Capital Markets, is slightly more optimistic than most. He said a brighter outlook for business investment spending and other good economic reports had led him to revise his GDP forecast to 3.2 percent growth for the July-September period, up from 2.8 percent earlier.
"The American economy is firing on virtually all cylinders and cruising at a decidedly stronger rate than in recent years," Guatieri said.
Friday's report on GDP -- the economy's total output of goods and services -- was the government's third and final estimate for the second quarter.
The final upward revision was driven by newfound strength in business investment, which grew at an annual rate of 9.7 percent last quarter thanks to higher spending on structures and equipment. The government's previous such estimate had been 8.1 percent.
A separate report Thursday showed demand for business equipment climbed more than forecast in August, indicating corporate investment will continue to help the economy grow. Orders for nonmilitary capital goods excluding aircraft climbed 0.6 percent after a 0.2 percent decrease in July that was smaller than previously estimated, according to the Commerce Department's report.
Exports also helped the economy. The data showed that exports grew at an 11.1 percent rate in the second quarter, stronger than 10.1 percent in its earlier estimate.
Consumer spending, which accounts for more than two-thirds of economic activity, grew at a 2.5 percent annual rate. That figure was unchanged from the previous estimate. But it represents twice the 1.2 percent growth in consumer spending in the first quarter.
The surge of activity this spring was in part a turnaround from the harsh winter, which disrupted factory production and kept consumers away from stores.
Because of the rough start to the year, growth for 2014 overall is expected to be a temperate 2.1 percent, little changed from last year's 2.2 percent increase.
Analysts have sketched a much brighter outlook for 2015. They say the economy is entering a period of above-trend growth as unemployment falls. More job growth should translate into stronger consumer spending.
Economists at JPMorgan Chase predict growth of 3 percent next year. That would be a significant improvement on the economy's average annual growth of around 2 percent since the recession ended in June 2009.
Federal Reserve policymakers last week decided to keep a key short-term interest rate at record lows, near zero, and indicated that they planned to keep it there for a "considerable time."
Analysts regarded the Fed's comments as support for their view that the Fed won't start raising rates until mid-2015. The low rates should help bolster higher spending by consumers and businesses, which in turn would lead to continued growth and drive down the unemployment rate, now at 6.1 percent.
"The labor market has yet to fully recover," Federal Reserve Chairman Janet Yellen said at a news conference after a monetary policy meeting concluded Sept. 17. "There are still too many people who want jobs but can't find them."
Information for this article was contributed by Martin Crutsinger of The Associated Press and by Victoria Stilwell and Chris Middleton of Bloomberg News
Business on 09/27/2014