US grows by better-than-expected 1.7% in Q2

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The US economy grew by more than expected during the second quarter of the year, the latest official data suggests, adding to evidence for the Federal Reserve to slow its quantitative easing.

The data, along with positive jobs numbers, helped the Nasdaq and S&P 500 to rise after the markets opened in the US. It also supported markets in Europe, with the FTSE 100 and Euro Stoxx 50 both showing gains.

Preliminary figures published by the Bureau of Economic Analysis show the world’s biggest economy expanded by an annualised 1.7 per cent between April and the end of June. This was higher than the 1 per cent forecast by economists and an advance from the 1.1 per cent seen in the first quarter.

Close Brother Asset Management chief investment officer Nancy Curtin says: “The latest GDP release gives us reason to be cautiously optimistic. Although down a touch on last quarter, this is still better than the markets had feared given the reduction in global trade, and demonstrates that the US remains fairly resilient.

“This improved reflection of economic resilience may keep Bernanke on track to taper QE in September. A September move is no longer new news and appears to have been largely priced in by the markets.”

Further evidence for the tapering of the Fed’s $83bn-a-month bond-buying programme came from a report by payrolls processor ADP, which said the US had created 200,000 jobs in July. The Fed’s tapering decision is closely linked to the US employment rate.

Capital Economics senior US economist Paul Dales says: “Jobs growth remained fairly strong in July. We expect the Fed will put more emphasis on this during its policy meeting that concludes later today rather than the weaker tone of the other activity data.”