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Washington - The biggest gain in U.S. business investment in over two years helped the world's largest economy expand more than previously forecast in the second quarter, raising expectations for the rest of 2014.
Gross domestic product, the value of all goods and services produced, rose at a 4.2 percent annualized rate, up from an initial estimate of 4 percent and following a first-quarter contraction, Commerce Department reported Thursday in Washington. Other reports showed the outlook for home sales improved in July, fewer people filed claims for jobless benefits last week and consumer confidence climbed.
Recent data showing American factories are receiving more orders and employment is picking up indicate companies such as General Electric will probably see demand sustained into the second half of the year. Better growth prospects and little sign of inflation signal Federal Reserve officials can wind down monthly asset purchases while keeping interest rates low.
"The recovery is becoming more well-entrenched," said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Fla., who correctly projected the gain in GDP. "There is more optimism among businesses about increased demand. Ultimately, the Fed has to think seriously about the end game, though there is no need to hit the brakes any time soon."
The median forecast of 77 economists surveyed by Bloomberg called for a 3.9 percent gain in GDP. Estimates ranged from 3.5 percent to 4.3 percent.
The report also showed corporate profits climbed by the most in almost four years.
The revisions to GDP showed the pickup in growth last quarter came from bigger gains in corporate spending on structures and equipment and a smaller trade deficit that was partly offset by more tepid inventory building.
Stripping out inventories and trade, the two most volatile components of GDP, so-called final sales to domestic purchasers increased 3.1 percent, up from a previously reported 2.8 percent gain and the biggest advance in four years.
Business investment increased at an 8.1 percent annualized rate, the most since the first three months of 2012.
Companies are buying more equipment as earnings improve. Thursday's report also offered a first look at corporate profits. Before-tax earnings rose 8 percent last quarter, the most since the third quarter of 2010, after a 9.4 percent drop in the prior period.