US growth up 3.8% in Q2

Sep 27 | Updated: Sep 28 2007, 05:51am hrs
The US economy expanded at the fastest pace in more than a year in the second quarter, before the sell-off in credit markets that threatens to hobble growth in the second half.

Gross domestic product rose at a revised 3.8% annual rate from April though June, propelled by a surge in exports, figures from the Commerce Department showed in Washington. The economy advanced at a 0.6% rate in the first quarter.

More recent reports have shown residential construction slumped to a 12-year low in August and manufacturing cooled, suggesting last quarter's growth rate will be the strongest of the year. Concern over the damage that a worsening housing recession may wreak prompted Federal Reserve policy makers last week to cut interest rates more than most economists forecast.

We see a pretty dismal outlook given the continued imbalance in the housing market and tighter credit conditions,'' said Zach Pandl, an economist at Lehman Brothers Holdings Inc. in New York, who correctly forecast the figure. This number remains largely unaffected by the credit crunch and even the third-quarter figures will only have a limited impact.''

The median forecast of 74 economists surveyed by Bloomberg News matched the revised GDP reading. Predictions ranged from 3.5% to 4.0%. Today's report is the last of three estimates of GDP for the period.

The number of workers filing first-time jobless claims unexpectedly fell last week to a four-month low of 298,000, the Labour Department said. The decline may help allay concerns about a weakening labor market.

Treasury securities erased gains after the reports. Yields on benchmark 10-year notes were at 4.62% in New York, little changed from late. The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 1.4% annual rate in the second quarter and was up 2% from the same time in 2006, according to the GDP report.

A Commerce Department report is projected to show inflation has moderated even more. Figures on personal income and spending will show the price gauge rose 1.8% in the year ended in August, the smallest 12-month gain since 2004, according to a Bloomberg survey.

Less inflation has opened the door for the central bank to cut interest rates. The policy-making Federal Open Market Committee on September 18 lowered its benchmark rate to 4.75% from 5.25%, the first reduction in four years.