WASHINGTON (AP) — The U.S. economy posted a solid rebound in the April-June quarter after a harsh winter, led by a surge in consumer spending and a recovery in foreign trade that bode well for the rest of the year.
It also ended up squeezing out some growth in the first quarter, reversing an earlier estimate that the economy shrank at the start of the year.
The Commerce Department said Thursday that the gross domestic product, the economy's total output of goods and services, grew at a 2.3 percent annual rate in the second quarter. The government also said GDP in the January-March period grew 0.6 percent instead of shrinking at a 0.2 percent pace.
The latest results mirror a familiar pattern over the last few years. The economy has consistently underperformed in the first quarter and then revved up in the spring and summer. The uneven momentum has contributed to overall tepid growth since the Great Recession officially ended in June 2009. It's been the slowest recovery since World War II.
Revised GDP figures for the past three years released by the government Thursday reveal that the economy's already-modest growth since 2011 was even weaker than thought.
Economists, however, are hopeful about the rest of 2015. They expect overall GDP growth to continue strengthening in the second half of this year to around 3 percent, as consumer spending benefits from sizable employment gains. The upbeat outlook explains why the Federal Reserve appears on track to start raising interest rates this year.
On Wednesday, the Fed noted that the job market, housing and consumer spending have all improved. But it kept a key rate at a record low near zero, where it's remained since 2008. The Fed said it still needs to see some more gains in the job market and feel reasonably confident that low inflation will move back to its 2 percent target rate.
Many economists peg September for the first rate hike, while others say the Fed might wait until the end of the year.
"The second-quarter U.S. GDP data support the Fed's more upbeat tone on economic conditions and suggests that the economy could cope with higher interest rates." said Steve Murphy, U.S. economist with Capital Economics.
The Fed, which has been worried that inflation has hovered consistently below its 2 percent target, got some better news on that front. The new GDP report showed that overall prices, which had been declining for two quarters because of the steep plunge in oil prices, rose at a 2.2 percent rate in the second quarter. Excluding food and energy, prices accelerated 1.8 percent from 1 percent gains in the previous two quarters.
"The economy is not booming along but that doesn't mean it is soft either," said Joel Naroff, chief economist at Naroff Economic Advisors. "It is growing fast enough to keep job gains at a level so that the unemployment rate will continue declining."
Naroff said economic data over the next two months will determine the Fed's timing.
The second quarter growth figure was the best showing since a gain of 4.3 percent in the third quarter of last year. The GDP report was the government's first of three estimates.
In the government's newly revised figures for 2012-2014, the economy expanded at just a 2 percent annual rate, down from a previous estimate of 2.3 percent. Nearly all the weaker-than-expected growth occurred in 2013, when the government now says the economy expanded just 1.5 percent, much less than its previous 2.2 percent estimate.
The changes result from Commerce's annual revisions to its growth data, which are based on updated data from the Census Bureau, IRS and other agencies.
The modest expansion has raised concerns that the U.S. economy has entered a period of historically slow growth. The nation's workforce is growing at a weaker pace, and employees are less efficient than before the recession, government data show. Those trends could restrain future economic growth.
In the second quarter, consumer spending, which accounts for 70 percent of economic activity, expanded at an annual rate 2.9 percent. That is a sizable pickup from the 1.8 percent growth in the first quarter.
Trade also served as a small boost to overall growth. It added 0.1 percentage point to growth after subtracting nearly 2 percentage points in the first quarter. The swing reflected a rebound in exports, which had plunged in the first quarter, and a slowdown in imports.
Trade in the first quarter was hurt by a labor dispute at West Coast ports and the rising value of the dollar, which was making U.S. goods more expensive in foreign markets.
Business investment, which has been hurt by a sharp cutback at energy companies in response to falling oil prices, fell at an annual rate of 0.6 percent in the first quarter. That reflected in part a big drop in the category that covers oil and gas exploration activities.
Housing construction was a bright spot for the economy in the second quarter, rising at a 6.6 percent rate, slightly slower than in the first quarter. The government sector grew at a 0.8 percent rate as gains in spending by state and local governments offset a drop at the federal level.
Businesses added to their stockpiles at a slower pace in the second quarter, translating into a 0.1 percentage point drag on growth.