"The economic growth since last year has been very disappointing, largely because of the fiscal drags from tax increases and spending cuts, sequester, but it hasn't translated into weaker jobs growth"
- Mark Zandi, chief economist with Moody's Analytics
A series of upbeat economic reports was published Wednesday, cementing expectations that the recovery from the worst recession in the post-World War II era is now stronger than previously expected. The world's largest economy expanded at an annualized pace of 1.7% in the April-June period, slower than a 1.8% growth in the previous quarter, however, beating analysts' expectations of a 1.1% reading. Almost a percentage point was generated by the construction sector, as record-low borrowing costs drove up demand for housing together with other structures, boosting real estate prices. Furthermore, hiring also gained pace as in the first half of this year jobs growth averaged about 200,000 payrolls, compared with just 180,000 seen in previous six months. Moreover, inventories surged 1.3% after an almost flat reading in the previous period. A series of tax hikes and budget cuts, also known as sequester, which accounts around 20% of the economy, did not bite as hard as previously thought.
The July FOMC statement showed that the Fed remains committed to its $85 billion bond-buying scheme, as sticky inflation could derail economic expansion. Besides the Fed has decided to maintain interest rates unchanged at record lows, while buying $40 billion in residential mortgage-backed securities a month, along with $45 billion in Treasuries.
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