Economy in U.S. grows more than forecast as stockpiles climb

The economy in the U.S. grew more than projected in the second quarter reflecting an unexpected pickup in inventory building as consumer spending cooled. Growth in the previous three months was revised down.

Gross domestic product, the value of all goods and services produced, rose at a 1.7% annualized rate, after a 1.1% gain the prior quarter, Commerce Department figures showed today in Washington. The median forecast of 85 economists surveyed by Bloomberg called for a 1% advance for last quarter. Consumer spending, the biggest part of the economy, climbed 1.8% after increasing 2.3%.

Job gains and rising home prices are shoring up Americans’ confidence and lifting automobile sales and production, making it likely the U.S. will pick up once government spending cuts and tax increases pose less of a restraint. The report also showed inflation is falling further below the Federal Reserve’s goal as official wrap up a two-day meeting today to determine whether to trim monthly bond purchases aimed at spurring growth.

“There are encouraging signs the economy can withstand the fiscal restraint,” Stuart Hoffman, chief economist at PNC Financial Services Group in Pittsburgh, who projected a 1.5% increase in GDP, said before the report. “Everything looks and feels better. We should see a generally better second half than first half, and a stronger second half this year than last year.”

Rising Payrolls

Companies boosted payrolls in July by the most this year as employers grew more optimistic demand will pick up in the second half of the year, another report showed. The 200,000 increase in employment was more than projected and followed a revised 198,000 gain in June that was higher than initially estimated, according to data from the ADP Research Institute in Roseland, New Jersey. The median forecast of 40 economists surveyed by Bloomberg called for a July advance of 180,000.

Stock-index futures dropped after the GDP report erasing earlier gains. The contract on the Standard & Poor’s 500 Index maturing in September fell 0.1% to 1,683.2 at 8:38 a.m. in New York.

Economists’ estimates for GDP ranged from a 0.1% drop to a 1.8% increase. The GDP estimate is the first of three for the quarter, with the other releases scheduled for August and September when more information becomes available.

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