U.S. economy grew faster than initial estimate, Q2 GDP revised much higher

Gross domestic product expanded at a 3.7 percent annual pace instead of the 2.3 percent rate reported last month, the Commerce Department said on Thursday in its second GDP estimate for the April-June period.

The fact that the U.S. economy grew faster than initially thought in the second quarter could still allow the Federal Reserve to hike interest rates this year.

The data come after concerns earlier this week over slowing economic growth in China sent global equity markets into a tailspin last week, raising doubts that the U.S. central bank would raise its short-term interest rate next month. Markets have since recouped some of the huge losses.

On Wednesday, New York Fed President William Dudley said that prospects of a September lift-off in the central bank’s key lending rate “seems less compelling to me than it was a few weeks ago.”

U.S. stocks rose sharply on the GDP data, a day after posting their biggest one-day gain in four years. Prices for U.S. government debt fell, while the dollar firmed against a basket of currencies.

“The Fed could certainly hold off until later this year, citing the recent market turmoil, but the economic fundamentals would also justify a small September rate increase,” said Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh.

The upward revisions to second-quarter GDP growth also reflected the accumulation of $121.1 billion worth of inventories, $11.1 billion more than previously estimated. That meant inventories contributed 0.22 percentage point to GDP instead of subtracting 0.08 percentage point as reported last month.

The U.S. dollar benefited from upbeat the U.S. GDP data which helped the dollar index rise near one-week highs of 96.031 set on Thursday.

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