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The bad news buried in the 4.0% GDP growth in Q2

Nicole Goodkind
Nicole Goodkind

The U.S. economy grew 4.0% in the second quarter of 2014, its fastest pace since fall of 2013. First-quarter GDP was revised to negative 2.1% from a previously reported contraction of 2.9%.

So is the economy back in action? Not so fast, says New York Times senior economics correspondent Neil Irwin. "It's a good news, bad news story," he says.

“A big chunk of the growth we saw in the second quarter was driven by inventories,” he says. “That doesn’t really tell you anything about the future, that just means there’s more stuff on store shelves and warehouses which means that maybe growth isn’t going to skyrocket in the quarters ahead.”

Related: Q2 is the best economic growth we'll see all year: Peter Schiff

Still, Irwin has a solid outlook for the quarters ahead. A contraction of 2.1% isn’t the true state of the economy, he says, “but also 4% isn’t the true underlying trend, and it’s not quite as good as it might sound.”

Irwin predicts that the growth rate for the year will remain between 2%-2.5%. “It’s steady growth, not a recession and not a down-turn, but also not a boom or expansion," he says.

Fed Chair Janet Yellen delivers the FOMC statement at 2pm on Wednesday, but Irwin doesn’t see anything in the GDP report that will affect the trajectory of tapering. “It seems almost certain they’ll continue that until they’re done in October," he adds.

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