Washington, DC, Aug. 28--The U.S. economy emerged from the doldrums in the second quarter of this year and grew at a solid 3.1% annual rate, a better performance than the government thought just a month ago.
The revised reading on gross domestic product released by the Commerce Department Thursday showed the economy picking up more speed in the April to June quarter than the 2.4% growth rate first estimated.
The 0.7% improvement to GDP reflected more military spending for the Iraq war and more robust spending by consumers and businesses than the government previously thought. The revised second quarter reading was stronger than the 2.9% growth rate economists were expecting and marked the economy's best performance since the third quarter of 2002.
The rebound came after two straight quarters of anemic economic growth. GDP, which measures the value of all goods and services produced within the United States, increased at just a 1.4% pace in the final quarter of 2002 and the first three months of this year.
Amid signs of an economic rebound, the Federal Reserve earlier this month decided to hold a key short-term interest rate at a 45-year low of 1% and hinted that the rate may stay at this low level for some time.
Economists are predicting that the economy will pick up speed in the second half of this year, with some estimating that growth will clock in at an annual rate of 3.5% or more.
Near rock-bottom short-term borrowing costs along with fatter paychecks and other incentives coming from President Bush's third tax cut should motivate consumers and businesses to spend and invest more, thus boosting economic growth.
Even if the economy perks up in the second half, the job market probably will remain sluggish for a while, economists say. The nation's unemployment rate dipped to 6.2% in July, but that was mainly because a lot of people left the civilian labor force. Businesses cut jobs for the sixth month in a row.
Economists say businesses will want profits to improve and want to feel secure about the economic rebound before they go on a hiring spree.
After-tax profits of U.S. corporations fell by 3.4% in the second quarter, compared with a 3.8% increase in the first quarter, the GDP report said.
In the second quarter, surging military spending was a major factor in the strong GDP showing. Spending by the federal government on national defense increased at a whopping 45.9% rate, the largest increase since the third quarter 1951. The new estimate was stronger than the 44.1% growth rate for such spending reported a month ago.
Consumer spending grew at a 3.8% pace in the second quarter, up from a 3.3% growth rate previously estimated. Much of that pickup reflected more brisk spending on big-ticket goods, such as cars and appliances. Consumer spending on such ``durable'' goods grew at sizable 24.1% rate, the biggest increase since the end of 2001.
Consumer spending has been the main force keeping the economy going.
Thursday's report offered signs that businesses, whose reluctance to spend in previous quarters was a main factor in the economy's listlessness, may be coming around.
Businesses increased spending in the second quarter on equipment and software at an 8.2% pace, up from the 7.5% growth rate previously reported, and a turnaround from the cut in such spending made during the first quarter of this year.
And, after six straight quarters of cutting spending on plants and other structures, businesses increased such investment in the second quarter at a 7.1% rate, also stronger than the 4.8% growth rate first estimated for the quarter.
The nation's trade deficit also was less of a drag on second-quarter GDP than the government previously thought. The trade deficit shaved off 1.20%age point from GDP, versus the 1.56%age point reduction first estimated.
