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US economy posts solid 2.3% growth rate in Q2

Martin Crutsinger
Associated Press

Washington — The U.S. economy posted a solid rebound in the April-June quarter after a harsh winter, led by a surge in consumer spending and a recovery in foreign trade that bode well for the rest of the year.

It also ended up squeezing out some growth in the first three months of the year, reversing a contraction into a small expansion.

The Commerce Department said Thursday that the gross domestic product, the economy’s total output of goods and services, grew at a 2.3 percent annual rate in the second quarter. The government also said GDP in the January-March period grew 0.6 percent instead of shrinking at a 0.2 percent pace.

Consumer spending, which accounts for 70 percent of economic activity, expanded at an annual rate 2.9 percent in the second quarter, a sizable pickup from the 1.8 percent growth in the first quarter.

Economists are looking for overall GDP growth to continue strengthening in the second half of this year to around 3 percent, as consumer spending benefits from sizable employment gains.

The signs of a strengthening job market and expectations of faster growth ahead help explain why the Federal Reserve appears on track to start raising interest rates this year. On Wednesday, the Fed ended its latest policy meeting by keeping a key rate at a record low near zero, where it’s remained since 2008.

The Fed said it still needs to see further gains in the job market and feel reasonably confident that low inflation will move back to its 2 percent target rate.

Many economists think the first rate hike will occur in September. Others say it may take the Fed until the end of the year to conclude that the time is right to increase rates.

The second quarter figure was the best showing since a gain of 4.3 percent in the third quarter of last year. The GDP report was the government’s first of three estimates.

On top of robust consumer spending, trade served as a small boost to overall growth. It added 0.1 percentage point to growth after subtracting nearly 2 percentage points in the first quarter. The swing reflected a rebound in export sales, which had plunged in the first quarter, and a slowdown in imports.

Trade in the first quarter was hurt by a labor dispute at West Coast ports and the rising value of the dollar, which was making U.S. goods more expensive in foreign markets.

Business investment, which has been hurt by a sharp cutback at energy companies in response to falling oil prices, fell at an annual rate of 0.6 percent in the first quarter. That reflected in part a drop of 68.2 percent in the category that covers oil and gas exploration activities. That decline followed a 44.5 percent plunge in the first quarter and was the biggest fall in that sector since the spring of 1986.

Housing construction was a bright spot for the economy in the second quarter, rising at a 6.6 percent rate, slightly slower than in the first quarter. The government sector grew at a 0.8 percent rate as gains in spending by state and local governments offset a drop at the federal level.

Businesses added to their stockpiles at a slower pace in the second quarter, translating into a 0.1 percentage point drag on growth.