MercoPress. South Atlantic News Agency

US economy surprises with strong 3.4% growth in Q2

The United States economy grew faster than expected over the past three months, 3.4% on an annual basis, the best quarterly performance since early 2006. In the previous quarter the economy expanded 0.6%.

The figures were keenly anticipated following signs that the slump in the US housing market has been having a negative impact on the wider economy. The growth figures were welcomed by President George W. Bush who praised the "resilience" of the economy. "The world economy is strong and I happen to believe one of the main reasons why is because we remain strong," he said. However, the growth figures from the Commerce Department indicated a further deterioration in consumer spending between April and June and continued weakness in the housing market. The rate of growth in consumer expenditure slowed to 1.3% from 4.2% earlier in the year, reflecting growing caution among households about the economic outlook. Investment in house building fell 9.3% on an annual basis, although the fall was less severe than the 15.8% decline seen in the first quarter. The 3.4% economic activity expansion was boosted by strength in business investment, government spending and rising exports. The improved global trade picture showed exports grew 6.4% while imports fell 2.6%, amid sharp declines in the US dollar. At the same time, core consumer prices, excluding food and energy, rose by 1.4% over the period, their slowest quarterly rate of growth since 2003. But Capital Economics said it did not expect the past quarter's growth rate to be sustained and that annual growth would not be higher than 2%. The US Federal Reserve is anticipating somewhat stronger growth in the second half of 2007 but has still revised downwards its full-year growth forecast to between 2.25% and 2.5% after the slowdown earlier this year. The Fed has kept interest rates on hold at 5.25% for several months as it balances concerns over the extent of the housing slump with signs that inflationary pressures may be easing. However the encouraging data has yet to overcome the persistent slump in the housing market confirmed earlier this week. Sales of new US homes fell in June 6.6% to an annual rate of 834.000, the largest amount in five months according to reports from the US Commerce Department. This was more than triple than expected and comes as banks start to tighten their lending rates. Prices of newly-built homes fell 2.2% last month to 237.900 US dollars as house builders continued to offer heavy incentives to shift an oversupply of stock, which is putting pressure on an already strained market. But despite their efforts to mop up the overhang, the inventory of unsold new homes was static for June at 537,000 units. The disappointing numbers follows on data showing sales of existing homes in the US during June fell to the slowest pace since November 2002.