The U.S. economy staged a far bigger rebound last quarter than first thought, according to a new report that helped to send U.S. stock markets to their second day of strong recovery.
The nation’s economic growth is outpacing the rest of the developed world, bolstering confidence that it will remain sturdy in coming months despite global headwinds.
The economy as measured by gross domestic product expanded at an annual rate of 3.7 percent in the April-June quarter, the Commerce Department reported Thursday. That’s more than a percentage point greater than the initial 2.3 percent estimate and a sharp upgrade from the anemic 0.6 percent advance during the January-March quarter.
U.S. stock markets shot up Thursday after the GDP report and a strong day across global financial markets. The Dow Jones industrial average closed up 369 points to 16,655, following a surge Wednesday when stocks rallied to snap a six-day losing streak that saw the Dow tumble about 1,900 points.
Energy stocks surged as the price of U.S. oil jumped more than 10 percent, closing back above $40 a barrel.
Investors were also encouraged by a rebound in the Chinese stock market as the nation’s main index logged its biggest gain in eight weeks.
The S&P 500 index gained 47.15 points, or 2.4 percent, to 1,988. The Nasdaq composite rose 115.17 points, or 2.5 percent, to 4,813.
Thursday’s market action pushed the three indexes into positive territory for the week and nudged the Nasdaq out of the red for the year. The tech-heavy index is now up 1.6 percent for the year, while the Dow and the S&P 500 are still lower.
To be sure, the GDP report provides a backward look at the U.S. economy. Since the spring, it has been hit with deepening concerns about a slowdown in China and recent turbulence in global financial markets. It remains unclear how the U.S. will fare in the months ahead if developments abroad deteriorate.
The robust second-quarter numbers, however, indicate a level of growth unmatched by the rest of the developed world and a solid footing heading into the second half of the year.
“The U.S. economy entered the current market turbulence with momentum, which will help it to shrug off the drag from China and other developing economies,” said Diane Swonk, chief economist at Mesirow Financial.
In contrast, Japan — the world’s No. 3 economy — shrank at an annual pace of 1.6 percent in the second quarter. Germany eked out 0.4 percent growth, and the United Kingdom expanded at a modest 0.7 percent rate. France didn’t grow at all.
The U.S. economy will probably cool slightly in the third quarter, but economists still expect solid growth that should keep fueling jobs and spending.
Paul Ashworth, chief U.S. economist at Capital Economics, projects GDP growth of 2.5 percent in the current July-September quarter.
“The economy regained a massive amount of momentum in the second quarter and all the evidence from July’s activity and employment data suggests that momentum continued into the third quarter,” Ashworth said in a note to clients.
Mark Zandi, chief economist at Moody’s Analytics, is forecasting the economy to grow around 2.8 percent in third quarter and accelerate to a 3.5 percent annual rate in the October-December period. But he said that is based on an expectation that the recent market turbulence will not inflict long-lasting damage on the economy.
“My forecast rests on the assumption that this is a garden variety market correction, with stock prices dropping by 10 percent from their recent high,” Zandi said. “If we get a bigger decline of 20 percent, then that will hurt consumption and housing, and we will not get the job growth we are expecting.”
The revision for second-quarter growth was broad-based, reflecting more robust spending by consumers, businesses and government.
Consumer spending grew at annual rate of 3.1 percent, up from a 1.8 percent growth rate in the first quarter.
