The US economy grew at its fastest pace in two-and-a-half years in the second quarter with all sectors contributing to the jump in output in a bullish signal for the remainder of the year.

Gross domestic product surged at an annual rate of 4.6 per cent, the Commerce Department said, revising its previous 4.2 per cent estimate, reported the Gulf Daily News, our sister publication.

The upward revision matched economists' expectations as data shows the economy is rebounding from the first quarter's 2.1 per cent contraction, blamed in part on unusually severe winter weather that gripped large swaths of the country.

The department said the stronger second-quarter growth number mainly reflected larger increases in business investment than previously estimated, notably in manufacturing structures, and in exports.

With the US economy firing on nearly all cylinders, traders are bracing for an interest rate increase from the Federal Reserve next year. The dollar, which got a lift from the GDP data, has risen about 7 per cent against a basket of major currencies since early July in anticipation.

A faster pace of business spending and sturdier export growth than previously estimated were the two main factors behind the upward revision to US GDP, which had its best growth performance since the fourth quarter of 2011.

Consumer spending growth was unrevised at a 2.5 per cent rate as stronger healthcare outlays were offset by weakness in spending on recreation, other services and durable goods.

Household spending, however, is likely to accelerate, with another report showing consumer sentiment hitting a 14-month high in September.

But the expansion in consumer spending, combined with strong business investment, was nevertheless enough to push domestic demand ahead at its fastest pace since 2010.

So far, data covering manufacturing, trade and housing suggest that much of the second quarter's momentum spilled over into the third quarter. Growth estimates for the July-September quarter range as high as a 3.5 per cent pace.

When measured from the income side, the economy grew at a 5.2 per cent pace during the second quarter, while corporate profits rose at their fastest pace in three years.

Business spending on equipment was raised to an 11.2 per cent pace from a previously reported 10.7 per cent rate. Businesses also invested more in non-residential structures, such as gas drilling, as well as in research and development.

Businesses accumulated $84.8 billion worth of inventory in the second quarter, contributing 1.42 percentage points to GDP growth. The relatively strong pace could result in inventories making no contribution to growth in the third quarter.

A measure of US consumer confidence reached its highest level since July 2013, led by greater optimism that the economy will grow and incomes will rise.

The University of Michigan said yesterday that its index of consumer sentiment rose to 84.6 in September from 82.5 in August. That's the second highest level in the past seven years, although the index has rarely topped 85 since the Great Recession. Before the downturn, it typically stood above 90.

Still, the sunnier outlook could spur consumers to spend more, which would accelerate economic growth. Consumer spending accounts for about 70 per cent of economic activity. But spending growth has been subdued since the recession ended in 2009, averaging at an annual rate of 2 per cent. It usually rises above 3 per cent in a healthy economy.

Other measures also indicate that consumers' outlook is brightening. The Conference Board's consumer confidence index increased to a seven-year high last month. – TradeArabia News Service