GDP Is Better Than Good -- but Interest Rates are Still Not Going Up

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NEW YORK ( TheStreet) -- The economy did even better than we thought in the second quarter -- but none of it means that interest rates are going anywhere soon.

Gross domestic product rose at an annual 4.2% clip between April and June, as private investment was significantly better than first estimated, the Commerce Department said Thursday. Last month, the government's first estimate said the economy grew at a 4.0% rate after declining 2.1% in the weather-addled first three months of 2014.

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In a normal expansion -- we're more or less past the point of calling this a recovery any longer -- a number like this would be an occasion for expecting the Federal Reserve to raise interest rates fairly soon. But investors shouldn't be lulled. Though the number is very good, the broader backdrop policy makers are looking at is much less positive.

Two speeches last week by central bankers at the Jackson Hole economic conference make the point clearly.

The most recent problem is the ongoing woes in Europe , which led European Central Bank chief Mario Draghi to say the ECB is still actively worried about deflation and fiscal austerity, and will likely be pushing rates lower rather than higher. When Germany's economy is shrinking , Europe has problems that can't be ignored.

But for U.S. markets, Federal Reserve Chair Janet Yellen matters more. And she argued that "underutilization of labor resources still remains significant.''

Yellen has been the most people-oriented Fed Chair in memory, meaning the one most likely to give the fates and wallets of working people as much weight as those of bond holders. She has forced the country and the markets to focus more seriously on working-class and middle-class problems like stagnant wages and the 7.5 million workers who work part-time for economic reasons , about 3 million more than normal. Plus, she has forced America to talk about median real wages, which are still about 5% lower than before the recession.

Rates are going nowhere until Europe stabilizes, and until Yellen's alternative measures of work force slack improve more than they have.

That's why rates on 10-year Treasury bonds went down Thursday morning. People understood that the details of the GDP report, while good, aren't going to force anyone's hand.

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Consumption grew at the same 2.5% clip that the government first estimated -- enough to support restaurant chains like Chipotle and even tourism companies like United Continental and Expedia . Residential fixed investment rose an annualized 7.2%, benefiting Home Depot and Lowe's , as well as builders like D.R. Horton . That's way better than the 3.9%-a-year first-quarter decline.

Exports rose a little bit more than the government first estimated, at 10.1% a year, also reversing a first-quarter drop.