Economy in U.S. expanded more than forecast in second quarter

The U.S. economy expanded at a faster pace in the second quarter as a smaller trade deficit and gains in inventories overshadowed the effects of federal budget cutbacks.

Gross domestic product rose at a 2.5% annualized rate, up from an initial estimate of 1.7%, Commerce Department figures showed today in Washington. The median forecast of 79 economists surveyed by Bloomberg projected a 2.2% gain.

The improvement is consistent with projections that the U.S. has been able to weather the fallout of government budget cuts and higher taxes and is poised to pick up once those restraints fade. Gains in employment and home prices that are shoring up confidence signal households will sustain spending, the biggest part of the economy.

“We will get stronger growth in the second half,” Sam Coffin, an economist at UBS Securities LLC in Stamford, Connecticut, said before the report. UBS is the top forecaster of GDP in the past two years, according to data compiled by Bloomberg. “Household spending growth is helping the economy. The drag from the government sector is going to be out of the way.”

Estimates for GDP, the value of all goods and services produced, ranged from gains of 0.3% to a 2.5%, based on forecasts from economists surveyed by Bloomberg.

Gaining Momentum

Today’s revision paints a clearer picture of an economy gaining momentum after a drought, Superstorm Sandy and the battle over the impending fiscal cliff stalled growth in the last three months of 2012. The second quarter’s growth rate followed gains of 0.1% in the fourth quarter and 1.1% in the first three months of this year.

Consumer spending climbed 1.8%, the same as previously reported, propelled by gains in durable goods such as automobiles and appliances. That followed a 2.3% increase from January through March. Purchases added 1.2 percentage points to growth.

Consumers’ purchasing power improved, with disposable income adjusted for inflation rising at a 3.2% annualized rate from April through June after a 7.9% decrease in the first quarter. The saving rate in that period increased to 4.5% from 4.1%.

Today’s report also included revisions to first-quarter personal income. Wages and salaries fell by $46.2 billion, revised up by $10.7 billion from the previously reported $56.9 billion drop. They climbed by $55 billion in the second quarter.

Growing Profits

Today’s report also offered a first look at corporate profits. Before-tax earnings rose at a 3.9% rate, the biggest gain since the fourth quarter of 2011, after falling at a 1.3% pace in the prior period. They climbed 5% from the same time last year.

Gross domestic income, which reflects all the money earned by consumers, businesses and government agencies climbed at a 2.5% annualized rate in the second quarter, matching the gain in GDP.

The trade deficit in the second quarter was smaller than previously estimated, reflecting the biggest gain in exports in more than two years. The gap was little changed from the first quarter, eliminating the 0.8 percentage-point drag previously estimated.

On the business side, corporate spending grew at a 9.9% annualized rate, exceeding the 9% gain previously reported. This reflected a $62.6 billion gain in stockpiles that was larger than first estimated. Smaller gains in outlays for equipment and intellectual property were offset by bigger increases in commercial construction.

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