US Q2 Performance Beats Expectations

Initial figures, which will be revised as a more complete picture of performance emerges as further data becomes available, indicate that the US economy grew by 1.7% in the second quarter of the year, on an annualized basis. This level of performance exceeded analysts predictions and shows improvement over the Q1 figure of 1.1% which was adjusted down from 1.8% once all data had been evaluated.

The influence of the Sequester own-goal has not been as severe as some had feared. The Sequester was a series of automatic spending cuts that nobody wanted, but had been voted through both Houses as a mechanism to force bipartisan agreement over spending cuts and tax reforms. It meant that $85 billion had to be sliced out of public spending – this is the sum that the Federal Reserve is pumping into the economy each month in its stimulus measures, to put things in perspective.

According the Commerce Department, Q2 spending cuts by the government came in at 1.5% compared to 8.4% in Q1. Domestic demand accounts for 70% of US GDP and the figures show that consumer demand dipped in the second quarter with personal expenditure up by just 1.8% in Q2 compared to 2.3% growth seen in Q1. The economy is also creating new jobs faster than they are being lost, but the strength of the recovery is still very modest by traditional measures.

The Commerce Department’s figures show that exports are up by 5.4% in Q2, reversing a contraction of 1.3% seen in Q1. Imports have also risen and were up by 9.5% in Q2 compared to a rise of just 0.6% seen in Q1.

Comparable figures for the Eurozone economy will be released in the second half of August. The 18 member bloc was in recession in Q1 2013 and although there has been a slight easing of unemployment, it remains near a record high.