WASHINGTON – The U.S. economy grew from April through June at an annual rate of 1.7 percent — a sluggish pace but stronger than in the previous quarter. Businesses spent more, and the federal government cut less, offsetting weaker spending by consumers.

The government on Wednesday sharply revised downward its estimate of growth in the January-March quarter to a 1.1 percent annual rate from a previously estimated 1.8 percent rate.

Though growth remains weak, the pickup last quarter supports forecasts that the economy will accelerate the rest of the year. Economists think businesses will step up investment, job growth will fuel more consumer spending and the drag from government cuts will fade. If so, the Federal Reserve could scale back its stimulus later this year.

The April-June growth figure indicates that “the recovery is gaining momentum,” Paul Ashworth, an economist at Capital Economics, said in a note to clients.

During the April-June quarter, businesses increased their spending 4.6 percent after cutting by the same amount in the January-March period. And spending on home construction grew 13.4 percent, in line with the previous quarter.

At the same time, the federal government cut spending only 1.5 percent after slashing it 8.4 percent in the first quarter. And state and local governments spent more for the first time in a year.

Still, government cutbacks have weighed heavily on the economy over the past 12 months. In the past four quarters, the economy has grown at just a 1.4 percent annual rate. But if federal, state and local governments are excluded, the private sector has expanded at a much stronger 2.3 percent rate.

The “ongoing fiscal drag is masking private-sector health,” said Joseph LaVorgna, an economist at Deutsche Bank.

The weaker growth in consumer spending last quarter was significant because consumers account for about 70 percent of the economy. And a surge in imports reduced growth by the most in three years.

Yet economists say steady job growth should provide enough money for Americans to spend more and help the economy expand at an annual rate of around 2.5 percent in the third and fourth quarters.

On Wednesday, the government also released comprehensive revisions that updated the nation’s gross domestic product, or GDP, over the past several decades. Those figures showed that the Great Recession wasn’t quite as steep as initially estimated and that the recovery has been stronger than earlier thought.

The revisions showed that the economy grew 2.8 percent in 2012, up from an earlier estimate of 2.2 percent. Growth in last year’s first quarter was revised much higher. And growth in the fourth quarter of 2012 was reduced to an annual rate of just 0.1 percent.

 

Copy the Story Link