The U.S. economy performed a bit better than expected in the second quarter, shrugging off some of the impact from higher taxes and lower federal spending in the spring, the government reported Wednesday.
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The gross domestic product grew at an annual rate of 1.7 percent, hardly indicative of an economic boom, let alone enough to bring down elevated levels of unemployment soon. It is also the third quarter in a row in which growth failed to top 2 percent, the average since the recession ended in 2009.
Still, the increase was an acceleration from growth in the first quarter of 2013, which was revised downward to 1.1 percent from an earlier estimate of 1.8 percent by the Bureau of Economic Analysis.
“It was a reasonable performance,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “In the long run it’s not enough, but I’ll take growth wherever I can get it.”
The economy’s trajectory is being closely watched by the Federal Reserve, which on Wednesday concluded a two-day policy meeting and announced it was holding course on its huge stimulus effort.
It announced no changes after the latest meeting of its policy committee and offered no indication of how soon it might start to reduce the volume of its monthly bond purchases.
The Fed acknowledged the weak pace of growth during the first half of the year, describing the rate as “modest” rather than “moderate,” but maintained its forecast that “economic growth will pick up from its recent pace.”
The Fed also noted the sluggish pace of inflation, which has dropped to the lowest on record, but said that it continued to expect a rebound.
As usual, the Fed maintained its flexibility, noting that it was ready to increase or decrease its stimulus campaign as warranted by economic conditions.
The decision was supported by 11 of the 12 members of the Federal Open Market Committee. The sole dissenter was Esther George, president of the Federal Reserve Bank of Kansas City, who has dissented at each meeting this year, citing the risks of financial destabilization and higher inflation.
The Fed’s chairman, Ben Bernanke, surprised investors in June by announcing that the central bank expected to reduce the volume of its monthly asset purchases later this year and to end the purchases by the middle of next year, provided that economic growth met the Fed’s expectations. The central bank has increased its holdings of mortgage-backed securities and Treasury securities by $85 billion a month since December.
The Fed has said that it intends to maintain that policy at least as long as the unemployment rate remains higher than 6.5 percent and likely for some time thereafter as long as inflation remains under control. The rate was 7.6 percent in June, and July’s numbers will be out Friday.
On Wednesday the government also released comprehensive revisions that updated the nation’s gross domestic product over the past several decades. Those figures showed that the Great Recession wasn’t quite as steep as initially estimated and that the recovery has been stronger than earlier thought.
The revisions showed that the economy grew 2.8 percent in 2012, up from an earlier estimate of 2.2 percent. Growth in last year’s first quarter was revised much higher. And growth in the fourth quarter of 2012 was reduced to an annual rate of just 0.1 percent.
Many economists expected growth below 1 percent in the second quarter, as automatic spending cuts imposed by Congress and higher taxes this year began to bite. Growth could pick up in the rest of 2013 as those effects begin to fade.
Credit managers see slower growth
Credit tightened a bit in July but remained supportive of economic growth, according to a survey of companies’ credit managers, who said they had more difficulty with collections in July though they did not raise serious concerns.
An index derived from the survey slipped to 55.5 from June’s stronger 56.1 reading. A reading above 50 shows the economy is expanding, below 50 shows contraction.
| Mark Davis, email@example.com