U.S. economy shows vigor in Q2, but seen flagging

Strong exports and consumer spending supported by government stimulus checks drove the U.S. economy up at a solid 3.3 percent annual rate in the second quarter, much faster than first thought, but growth is expected to flag as those factors fade.
The U.S. Commerce Department on Thursday said consumer spending and net exports were more vigorous than initially estimated and that inventories fell less sharply. A month ago, it said U.S. gross domestic product had expanded at a 1.9 percent rate in the quarter.
The upward revision was much sharper than analysts had expected and added to evidence the U.S. economy may skirt the downturn many had forecast as a result of a deep decline in housing markets, tight credit and high energy and food prices.
"It's clear that the second quarter not only wasn't a recession quarter, it was actually a very robust quarter," said Michael Englund, chief economist for Action Economics in Boulder, Colorado.
GDP had grown at a sluggish 0.9 percent rate in the first quarter after a 0.2 percent contraction in the final three months of 2007. The fourth quarter of last year was the weakest since July-September 2001, when the economy was in recession.
The data did little to alter financial market bets that the U.S. Federal Reserve would hold interest rates steady into next year. The Fed has held benchmark borrowing costs at a low 2 percent since April to bolster the struggling economy.
Many analysts worry that exports and consumer spending, which have buoyed the economy, are likely to taper off in the second half of the year as spending supported by the tax rebate program dries up and weakening global growth and a stronger U.S. dollar crimp demand from abroad.
Consumer spending, which fuels two-thirds of the U.S. economy, grew at an upwardly revised 1.7 percent rate in the second quarter, rather than the 1.5 percent pace first reported.
Meanwhile, exports grew at a 13.2 percent annual rate instead of the 9.2 percent pace initially estimated. In all, a narrowing trade gap contributed more than 3 percentage points to GDP growth.
Housing, however, continued to be a sore spot. Residential construction fell at an annual 15.7 percent pace, slightly more than the 15.6 percent decline reported earlier.
Meanwhile, inventories dipped at an annualized $49.4 billion in the quarter, rather than the $62.2 billion drop first reported, a possible sign that businesses are less pessimistic than believed.
The economy's sluggishness has hit the job market hard. Employers have shed a total of almost half a million jobs this year, and unemployment hit a four-year high of 5.7 percent last month.