US economy 'promising'

US defence spending jumped 44% in the three months

The US economy enjoyed unexpectedly strong growth in the second quarter of the year, according to latest figures, prompting suggestions it has finally turned the corner.

The Commerce Department said healthy consumer and business spending helped gross domestic product (GDP) grow by 2.4% in the April to June period.

This followed growth of just 1.4% in both the final three months of 2002 and first quarter of 2003.

Latest jobless numbers provided further optimism, with the number of weekly claims falling to a five-month low last week.

Economists described both sets of figures as "quite promising news", prompting investors to push Wall Street up over 140 points at one point, before it settled down to close up 33 points at 9,233.

However, president George W Bush said the economy was still not growing fast enough.

Consumer split

The Commerce Department reported a 3.3% bounce in consumer spending between April and June, up from 2% in the first quarter.

Business investment leapt to 6.9% from a negative 4.4% previously.

It seems that what consumers are saying is, the worst is over, but they don't see a recovery yet Mark Vitner, Wachovia Securities Consumer spending defies sentiment

"It just reinforces the optimism about a second-half pick-up," said James Glassman, a senior economist at JP Morgan Chase.

"Consumer spending is quite strong and this is an interesting contrast with what people saw on consumer confidence."

Latest consumer confidence figures released earlier this week showed an expected slump in July, which economists had put down to concerns about rising unemployment.

A White House spokesman also cautioned that while the latest GDP figures were "another positive sign that our economy is continuing to pick up steam," there was still a long way to go.

"The president is not satisfied that the economy is growing fast enough to spur the job creation that we need," said the spokesman Scott McClellan.

Government blow-out

Defence spending showed the highest jump by far, up 44.1% between April and June. Overall government spending rose by 25.1%, the biggest gain since 1967.

With investment coming back, the signs seem to be there for a significant rebound in growth going forward Joel Naroff, Naroff Economic Advisors

Analysts insisted there were solid grounds for sustained growth ahead.

"The economy truly does look to be on the mend," said Joel Naroff, president of Naroff Economic Advisors.

"With investment coming back, the signs seem to be there for a significant rebound in growth going forward."

The weekly jobless figures showed the number of benefit claimants had also surprised analysts who had been expecting a slight rise in claims.

Instead, the number of benefit claimants fell by 3,000 to 388,000 in the week to 26 July.

Nonetheless, the Labor Department's index of employment costs ballooned in the April to June quarter, as health and pension costs rose sharply.