Economy in U.S. expanded at a 2.5% annual rate last quarter

The economy expanded at faster pace in the second quarter from the previous three months, a sign the U.S. was weathering federal budget cutbacks and higher taxes.

Gross domestic product rose at a 2.5% annualized rate, unrevised from the previous estimate, after expanding 1.1% in the first quarter, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg was a 2.6% pace.

Bigger gains in hiring and worker pay are needed to propel consumer spending, the biggest part of the economy, at a time when a run-up in mortgage rates is limiting the housing rebound. Federal Reserve policy makers, who last week decided to maintain $85 billion in monthly bond buying, are seeking more evidence of lasting improvement in the expansion before trimming stimulus.

“It’s slow and steady improvement in the economy,” said Gennadiy Goldberg, a strategist at TD Securities USA LLC in New York. “We haven’t seen enough acceleration in momentum. The Fed wants to see more vigorous growth.”

A separate report today from the Labor Department showed the number of Americans filing applications for unemployment benefits unexpectedly declined last week, signaling further progress in the job market.

Jobless claims decreased by 5,000 to 305,000 in the week ended Sept. 21. The median forecast of 49 economists surveyed by Bloomberg called for an increase to 325,000.

Stock Futures

U.S. stock futures extended gains after the reports. The contract on the Standard & Poor’s 500 Index (CME:SPZ13) advanced 0.2% to 1,689.50 at 9:04 a.m. in New York. The yield on the 10-year Treasury note climbed one basis point, or 0.01 percentage point, to 2.64%.

Estimates for GDP, the value of all goods and services produced, ranged from gains of 1.8% to 3.1%, based on forecasts from 79 economists surveyed by Bloomberg. The GDP estimate is the third and final for the quarter.

Consumer spending, which accounts for about 70% of the economy, climbed 1.8%, the same as previously reported, the revised data also showed.

State and local government outlays increased at a 0.4% annualized rate, compared with a previously reported 0.5% drop.

Trade became a drag on the economy as exports grew at a slower pace, while inventories contributed less to growth than previously reported. The trade gap and inventories are two of the most volatile components in GDP calculations.

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