Economy Watch: 2Q GDP Surprises on the Upside; FOMC Calls Growth “Modest”; ADP Says July Good Month for Hiring

Real gross domestic product growth was better than expected, an annualized increase of 1.7 percent. According to the central bank, the economy is growing at a "modest" pace. And ADP reported that the private sector added 200,000 jobs in July, more than predicted.

In recent weeks, prognosticators have been predicting that U.S. real gross domestic product would barely increase at all in the second quarter. On Wednesday, the Bureau of Economic Analysis released its first, or “advance” estimate of real GDP for the second quarter of 2013: an annualized increase of 1.7 percent. Though not especially robust, growth was better than expected. In the first quarter, real GDP increased by only 1.1 percent, annualized.

The increase in real GDP in the second quarter reflected positive contributions from personal consumption expenditures (people out buying stuff), exports (foreigners buying our stuff), nonresidential fixed investment (CRE spending), private inventory investment (businesses buying stuff), and residential investment (people buying houses). These were partly offset by declining from federal government spending—the old sequestration blues. Imports, which are a subtraction in the calculation of GDP, increased.

Personal consumption expenditures were up at a 1.8 percent annualized rate, while residential investment increased surged 13.4 percent, demonstrating that the housing recovering is now helping keep overall economic growth slogging along. Equipment purchases increased 4.1 percent, while CRE investment was up 4.6 percent.

FOMC Calls Growth “Modest” 

The Federal Open Market Committee wrapped up two days of meetings on Wednesday, and according to the central bank’s statement, the U.S. economy is now growing at a “modest” pace. That’s apparently a downgrade of the Fed’s characterization of the economic growth, which it’s been calling “moderate” in ‘ recent months.

“Economic activity expanded at a modest pace during the first half of the year,” the statement said. “Labor market conditions have shown further improvement in recent months, on balance, but the unemployment rate remains elevated. Household spending and business fixed investment advanced, and the housing sector has been strengthening, but mortgage rates have risen somewhat and fiscal policy is restraining economic growth.” (The sequestration that Congress allowed to happen in its continuing dysfunction, in other words.)

After the meeting, Fed Chairman Ben Bernanke said during a press conference that “when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7 percent, with solid economic growth supporting further job gains, a substantial improvement from the 8.1 percent unemployment rate that prevailed when the committee announced this program.” The exact timetable for the winding down of QE3 is still up in the air, in other words.

ADP Says July Good Month for Hiring

Automated Data Processing reported on Wednesday that the private sector added a net of 200,000 jobs in July, a stronger report than expected. June’s job gain, as reported by ADP, was revised upward from 188,000 to 198,000. Official jobs numbers are due on Friday, and ADP’s findings are only sometimes has been useful in forecasting what the government will report.

Wall Street had a mixed day on Wednesday, with some investors apparently none-too-pleased about what Chairman Ben said, resulting in a Dow Jones Industrial Average drop of 21.05 points, or 0.14 percent. The S&P 500 lost only 0.01 percent, however, and the Nasdaq gained 0.27 percent.