GDP Revised Up, Spending Strong

Washington, DC, Sept. 26–Healthy consumer spending nudged U.S. economic growth ahead at a slightly faster second-quarter pace than previously thought, the Commerce Department said on Friday, setting the stage for a second-half surge in growth.

Gross domestic product, or GDP, grew at a revised 3.3 percent annual rate in the three months from April to June, up from a 3.1 percent rate reported a month ago that Wall Street economists had expected to be unchanged. The second-quarter expansion was more than double the 1.4 percent rates posted in each of the two preceding quarters and was the strongest since a 4 percent rate of advance in the third quarter last year.

Many forecasters anticipate GDP growth is set to accelerate to rates of 4 percent or higher in the third and fourth quarters, supported by a buoyant housing market and by lean inventories that imply businesses have more incentive to make new investments. Unusually robust defense spending–up 45.8 percent in the second quarter for the strongest quarterly growth since 1951 in the Korean War era–added impetus to growth in the spring and may last for some time as U.S. involvement in Iraq and elsewhere continues.

Consumer spending increased at a 3.8 percent annual rate in the second quarter, nearly double the first quarter’s 2 percent–a significant pickup since spending by consumers on goods and services fuels two-thirds of national economic activity. Nonresidential investment, generally taken as a measure of businesses’ willingness to expand, grew at a 7.3 percent pace in the second quarter, not quite as strong as the 8 percent increase estimated a month ago but a major improvement from the first quarter when investment shrank at a 4.4 percent rate.