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GDP: Economy grew 4 percent in second quarter

The U.S. economy grew at an annualized rate of 4 percent in the second quarter of 2014, the Commerce Department said Wednesday in it first estimate of gross domestic product for the April-to-June period.

That topped forecasts of 3 percent growth for the quarter and marks a strong rebound from the first three months of the year, which saw the economy shrink by a revised 2.1 percent. The federal government initially estimated that first-quarter growth fell 2.9 percent, a decline that economists largely blamed on harsh winter weather.

"Not only did second-quarter GDP rebound by 4 percent annualized, but the decline in the first quarter was trimmed to 2.1 percent, from 2.9 percent, and other revisions show the economy growing at an even faster pace than previously believed in the second half of last year," said Paul Ashworth, chief U.S. economist for Capital Economics, in a research note.

Federal Reserve expected to cut billions more in stimulus

Renewed economic activity in recent months was led by stronger personal consumption, which rose 2.5 percent. A move by businesses to build their inventories, rising exports, and an increase in state and local government spending also contributed to growth.

The economy also performed better last year than previously estimated, the federal data show. The Commerce Department revised up growth figures for the fourth quarter of 2013 to 3.5 percent, from 2.6 percent.

The latest GDP numbers likely keep the Federal Reserve on track to continue scaling back its monthly bond- purchases, a program launched in 2009 to help keep interest rates low and stimulate the economy. The Federal Open Market Committee, the central bank's interest rate-setting panel, is scheduled to release its latest policy statement this afternoon. Forecasters expect the Fed to reduce its bond purchases by an additional $10 billion a month.

"Evidence of stronger growth, coupled with the uptick in the pace of job creation, should keep the Fed on their current path toward winding down their bond purchases," said Jim Baird, Chief Investment Officer for Plante Moran Financial Advisors, in a report.

With the stimulus program set to end in October, attention is focusing on when the Fed will move to raise interest rates. Evidence that the economy is picking up speed could persuade the central bank to tighten monetary policy as early as the first quarter of next year, some forecasters think.

Although the labor market had picked up to healthy levels this year, with employers adding 288,000 jobs in June, broader economic growth had lagged. Now economists expect the momentum to continue in the second half of this year, when they forecast growth of around 3 percent. The U.S. Labor Department on Friday will announce how many jobs the economy added in July.

Even with the pick-up in growth, however, the economy's performance this year has been nothing to write home about. Given its tepid performance in the first half of the year, the economy will have to grow more than 3 percent over the final two quarters for GDP to reach 2 percent for 2014, notes economist Dean Baker of the Center for Economic and Policy Research.

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