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US economic growth revised up sharply to 3.7% US economic growth revision to 3.7% boosts markets
(about 1 hour later)
The US economy grew by far more than previously thought between April and June, revised figures have shown. Shares rise and oil prices jumped 9% after revised figures showed the US economy grew by far more than had been thought between April and June.
The economy grew by an annualised rate of 3.7%, up from the first estimate of 2.3%. Growth of 0.6% in the first three months of the year was not revised.The economy grew by an annualised rate of 3.7%, up from the first estimate of 2.3%. Growth of 0.6% in the first three months of the year was not revised.
The second-quarter revision reflected greater corporate investment than previously estimated. The update reflected greater corporate investment than previously estimated.
The growth in the economy overall was due to strong consumer and government spending, and higher exports.The growth in the economy overall was due to strong consumer and government spending, and higher exports.
Inventories were also higher than the Commerce Department had initially estimated.Inventories were also higher than the Commerce Department had initially estimated.
Analysts said the revision would be welcome news to investors that have experienced a tough week on global stock markets, triggered by fears that the Chinese economy is slowing. They had expected the GDP number to be revised up, but not by as much as it was. The revision was welcome news to investors that have experienced a tough week on global stock markets, triggered by fears that the Chinese economy is slowing. They had expected the GDP number to be revised up, but not by as much as it was.
'Less compelling' Markets bounce
"A healthy upwards revision to US GDP should act as a much needed soothing balm for investors after the turbulence of this week," said Nancy Curtin, chief investment officer at Close Brothers Asset Management."A healthy upwards revision to US GDP should act as a much needed soothing balm for investors after the turbulence of this week," said Nancy Curtin, chief investment officer at Close Brothers Asset Management.
"Yes, the Chinese slowdown is making its mark on the performance of US manufacturing, and the natural resource sector is still reeling from lower commodity prices. However, today's figures should underline the resilience of the US economy in light of global headwinds." The news gave a sharp boost to the price of oil, which rose 9%, albeit from a very low base.
European share indexes responded immediately to the revised number, adding to strong gains made in morning trading. The main London, Paris and Frankfurt exchanges all closed up more than 3%. Wall Street also opened higher, with the Dow Jones index up 360 points, or 2.2%, to 16,646.08 in early afternoon trading. The price had been at its lowest for more than six years, but despite the gain it remains well under $50 a barrel. Brent is at $47.10 and US light crude at $42.40 a barrel.
Share values, too, responded immediately to the revised US data, adding to strong gains made in morning trading. The main London, Paris and Frankfurt exchanges all closed up more than 3%. Wall Street also opened higher, with the Dow Jones index up 360 points, or 2.2%, to 16,646.08 in early afternoon trading.
The revised figures are watched closely by investors looking for clues as to when US interest rates may rise.The revised figures are watched closely by investors looking for clues as to when US interest rates may rise.
Earlier this week, a Federal Reserve official said that, given the stock market turmoil and fears for the Chinese economy, the case for an early rate rise was "less compelling".Earlier this week, a Federal Reserve official said that, given the stock market turmoil and fears for the Chinese economy, the case for an early rate rise was "less compelling".
Prior to William Dudley's intervention, many economists had expected the Fed to raise rates in September.Prior to William Dudley's intervention, many economists had expected the Fed to raise rates in September.
'Off the table''Off the table'
The strong growth shown in the revised GDP figures will encourage some investors that an early rate rise may be back on the table, although next month remains unlikely, analysts said.The strong growth shown in the revised GDP figures will encourage some investors that an early rate rise may be back on the table, although next month remains unlikely, analysts said.
"Despite the good GDP numbers that we saw today, September largely seems off the table because of the turmoil that we've seen in the past week," said Scott Brown, chief economist at Raymond James."Despite the good GDP numbers that we saw today, September largely seems off the table because of the turmoil that we've seen in the past week," said Scott Brown, chief economist at Raymond James.
Recent data, however, "certainly points to a possibility of a rate hike this year," he added.Recent data, however, "certainly points to a possibility of a rate hike this year," he added.
US interest rates have been held at near-zero since the 2008 financial crisis. When they finally do rise, it will be the first interest rate increase in nine years.US interest rates have been held at near-zero since the 2008 financial crisis. When they finally do rise, it will be the first interest rate increase in nine years.