Consumer spending and factory output in June are fueling predictions for a more robust economic outlook in 2014 than previously predicted, especially after a disastrous downturn in the 1st quarter, according to the latest reports from the U.S. Department of Commerce and the New York Federal Reserve.
The upbeat numbers for the 2nd quarter appear to have boosted momentum into the 3rd quarter. The New York Fed’s Empire State Manufacturing Survey shows July factory activity expanding significantly.
A cautionary note, however, comes from Federal Reserve Chair Janet Yellen who told Congressional lawmakers that the recovery is not over because unemployment remains high.
However, if labor markets continue improving at a faster clip than anticipated, the United States Central Bank might consider raising interest rates sooner and quicker.
Unemployment in June fell to a six year low of 6.1 percent. For the fifth straight month, more than 200,000 jobs were added.
The good news for core sales is that consumer spending rose .06 percent in June and May’s numbers (which were initially reported as flat) actually rose .02 percent. Sporting goods, electronics and appliances were popular items for consumers.
Core sales most closely reflect the consumer spending component included in the annual Gross Domestic Product, and excludes automobile, gasoline, building materials and food services. Sales of building materials and gardening equipment fell in June about 1 percent.
Based on 2nd quarter improvements, forecasters with Macro Economic Advisors project an annual 3 percent growth rate in GDP for the year. Goldman Sachs increased its annual GDP projection to 3.4 percent.
Other signs of a better economic outlook, as reported in the Empire State survey, are June increases in manufacturing employment and hours worked weekly.
“Consumers will likely gain more confidence to spend as the job market improves and summer travel season hits full swing,” says Randy Hopper, credit cards vice president of Navy Federal Credit Union in Vienna, Virginia.
“We are optimistic that the second half of the year will deliver stronger sales growth,” says Hopper in an article by Reuters.
According to the Empire State survey, the index on general business conditions is 25.68, a 4-year high with 41 percent of respondents seeing improvements and 15 percent saying conditions were worse.
But there are lingering worries. The same survey found optimism for future growth declined in June. The index for future general business conditions fell 11 points to 28.5; future new orders fell nine points to 25.6, and future shipments dropped 21 points to 24.6.