US economy grew at 2.5 percent rate in spring


By Martin Crutsinger

AP Economics Writer

WASHINGTON (AP) — The U.S. economy grew at a 2.5 percent annual rate from April through June, much faster than previously estimated. The steep revision was largely because U.S. companies exported more goods and imports declined.

The Commerce Department said second-quarter growth was sharply higher than the initial 1.7 percent rate it reported last month. And the growth this spring was more than double the 1.1 percent rate from January through March.

The improvement in the trade deficit helped offset a weaker government spending.

Economists expect growth will stay at an annual rate of around 2.5 percent in the second half of the year, helped by steady job gains and less drag from federal spending cuts. Still, some say higher interest rates might restrain the economy’s expansion in the second half.

Rates could rise even further if the Federal Reserve decides to reduce its $85 billion a month in bond purchases at its September meeting. The Fed will consider the stronger second-quarter growth when making a decision next month. The bond purchases have helped keep long-term borrowing rates low.

Paul Ashworth, chief U.S. economist at Capital Economics, said stronger growth in the second quarter “should give Fed officials more confidence that the recovery is gathering steam as the fiscal drag begins to fade.”

He said the Fed is now more likely to slow the bond purchases in September, although that decision depends heavily on the August employment report. The government will release the employment report next week.

Ashworth forecast that growth in the current July-September quarter was likely to come in around 2.5 percent as well with the potential for even stronger growth in the October-December quarter. But he said the forecast assumes the Obama administration and Congress reach a deal to fund the government before it hits its $16.7 trillion borrowing limit cap in mid-October.

The government’s estimates of economic expansion measure changes in the gross domestic product, the broadest gauge of the economy. GDP measures the output of all goods and services produced in the United States.



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