US GDP beats expectations

The US economy grew 3.9% in the second quarter, better than previously reported.

Economists had forecast that the third and final estimate of gross domestic product (GDP) would be 3.7%, unchanged from the prior estimate.

The GDP rise was led by consumer spending on healthcare, food services, and accommodation, according to the Bureau of Economic Analysis (BEA).

Second-quarter consumption was revised up to 3.6% from 3.1%.

“The larger picture remains the same, growth remains on track and the economy’s positive, steady performance gives the Federal Reserve the confidence it needs to raise interest rates later this year,” Chris Rupkey at Bank of Tokyo-Mitsubishi wrote in a note to clients. “Our bet is on the consumer. The economy is likely to remain an island of prosperity in a world that is slowing as the commodity boom in the mid-2000s is turning into a bust for many developing nations.”

In a speech on Thursday, Federal Reserve chair Janet Yellen said a rate hike would be appropriate this year unless “the economy surprises us.”

The BEA also released personal consumption expenditures, a measure of consumer spending that serves as a gauge of inflation and is preferred by Yellen.

It was 2.2% for Q2, unchanged from the prior estimate.

“Core” PCE, which excludes volatile food and energy prices, was 1.9%, beating the forecast for 1.8%.

The average of GDP and gross domestic income (GDI) rose 0.7%, versus 0.4% in Q1. The new measure was introduced in the previous quarter as a new way to gauge the economy’s strength and correct the error that makes both different when, in theory, they should be equal.

After the release, US stock futures lost a bit of their strong overnight rally, with Dow futures up more than 200 points.

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