An update to United States expansion figures has shown the economy grew more than previously thought through the second quarter of the year, giving markets a much needed boost as shares and oil prices both soared by nearly 10 percent.
The revision shows that the economy expanded at a rate of 3.8 percent annualized, representing a 2.4 percent upward revision to primary data. The first quarter results were not changed.
Many analysts say the revision is down to much increased corporate investment, especially from Asian conglomerates into America, and this was backed up by comments from the director of Japanese headquartered investment firm CITIC Tokyo International at a recent economic conference in Beijing, where he said capital investments stateside had risen by 15 percent compared to Q1.
There was also positive news regarding inventories, which were higher than initially predicted by the Commerce Department.
Moral among investors has been low on the back of a chaotic week that saw markets falling badly in response to heightened fears that the world’s second largest economy, China, was faltering. So the current news was more than welcome and the revision was much higher than most expected.
“To be honest it’s just what the doctor ordered for investors around the world, and in the U.S. in particular,” said Close Brothers Asset Management’s head of strategies, Nancy Curtin, in a phone interview for Bloomberg yesterday. “The markets have been more turbulent than usual amid fears of China’s slowdown, so the GDP revision is a much needed boost to confidence.”
In response to the news, oil prices soared from their 6-year low point by 11 percent, but prices were still below the $50 benchmark despite the gains. Shares also rose significantly, adding to an already stellar morning session in the stock markets. The major European exchanges all closed up more than 4 percent, with Wall Street also improving as the Dow Jones rose 366.73 points.
Revisions to the official figures are important as they are a key signal as to whether the Federal Reserve will look to change interest rates. Board members had been particularly coy on any firm announcements recently but the general sentiment has been to hold off on any hike due to the turbulent nature of the stock markets and China’s economic woes.
The current news might be an influencing factor, and some observers say the Fed may be thinking about a rate rise within the next three to six months on the back of the GDP revision.
