Improved trade and investment figures helped the US economy grow at an annual rate of 4% in the second quarter, according to the latest release from the Commerce Department.
Revised figures showed the economy fared much better than its initial forecast 3.4% rate. The rise eclipsed the 0.6% growth seen between January and March but analysts believe the current credit "re-pricing" and worries caused by the US housing slump will limit growth for the rest of 2007. The crisis in the US sub-prime mortgage sector has fanned fears that the economy will be held back as banks and other lenders - and thus borrowers - face much tougher market conditions. Consequently, the stock market failed to be mollified by the second quarter economic data, instead focusing on a very uncertain future. Markets are expecting the Federal Reserve to lower the basic rate which now stands at 5.25%, but if growth remains strong and inflation is threat rates might remain unchanged in the coming mid September meeting. The upward revision to the second quarter figure, well above analysts' expectations, was driven by robust corporate investment and better-than-expected export figures. Exports increased 7.6% (instead of 6.4%) and imports dropped 3.6% (-2.6%), while investments increased 11.1% (8.1%), particularly in infrastructure. But analysts said the figures were unlikely to deter the Federal Reserve from cutting interest rates next month if it believed the recent market turmoil was likely to last for some time. Domestic consumption rose 1.4% in spite of higher gasoline prices and a slowdown in the housing market.