The U.S. economy grew at a 2.5% annual rate in the second quarter, faster than initially estimated, as American companies exported more and consumers bought fewer imports than the government had calculated last month.
Exports’ growth was the highest since late 2010, the government said Thursday.
The government’s estimate of overall economic growth was revised up from its initial announcement of 1.7%. The revised second-quarter estimate compares with 1.1% annualized growth in the first quarter and is the highest since last year’s third quarter rate of 2.8%.
In the new numbers, the Commerce Department said consumer spending climbed 1.8%, non-residential investment spending moved up at a 4.4% rate, and government spending fell 0.9%. Consumption, investment and government spending are the largest components of gross domestic product.
Second-quarter growth was slightly faster than the 2.3% annual rate economists had expected.
The report comes as the Federal Reserve is considering when to slow down the pace of the bond-buying program it has used to push down interest rates and buoy the economic recovery. Economists say the new second-quarter estimate of gross domestic product points to slightly faster growth in the second half, and its weak spots aren’t likely to keep the Fed from starting to tighten this year.
“I am not sure that the new numbers change the thinking at the Fed,” said Joel Naroff, president of Naroff Economic Advisors. “It is the feeling that (bond buying) has to end, regardless of the impact on the economy in the short term. This report supplies some cover but doesn’t change anything about the outlook.”
The negative news in today’s report was that inventories rose more quickly than expected, accounting for most of the difference between what economists had expected and the better news the government delivered. That means companies will probably produce less in the second half of the year, as they sell off their stock of newly-finished products, Ameriprise Financial chief economist Russell Price said.
On the plus side, the beginnings of a recovery in Europe bode well for U.S exports late this year, Price said. Business investment is also likely to pick up, said PNC Financial chief economist Gus Faucher. And with Congress debating whether to allow federal budget cuts implemented in March to continue, while President Obama proposes adding spending, there is little chance of new cuts that will harm short-term growth, Price said.
“It’s addition by not having subtraction,” Price said. “Corporate spending is a good story but the pace of consumer spending worries me a bit.”
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