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GDP Grows at 3.3% Rate in Quarter

From Reuters

The U.S. economy grew faster in the second quarter than previously thought as business inventories rose at the strongest rate in four years, the government said Wednesday, a sign the soft patch was not as soft as feared.

U.S. gross domestic product -- the measure of total output within the nation’s borders -- expanded at a revised 3.3% annual rate in the April-June quarter.

That was up from a 2.8% rate the government estimated a month ago but still slower than the first quarter’s 4.5% rate, and the most sluggish rate of GDP advance since the first quarter of 2003.

The GDP figure was the second and final revision to second-quarter performance and handily outpaced Wall Street economists’ forecasts for a 3% rate of growth.

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Though well down from the first-quarter rate of expansion, it left the economy in better shape than anticipated for a widely forecast pickup in the second half of the year.

Inflation also was muted, with a favorite price gauge cited by Federal Reserve Chairman Alan Greenspan -- the index of personal consumption expenditures excluding volatile food and energy -- slowing to a 1.7% annual rate of increase from 2.1% in the first quarter.

The main culprit behind the second-quarter GDP falloff after a vigorous first quarter was weaker consumer spending, which eased to an increase at an annual rate of 1.6% -- the softest since the 1% rise in the second quarter of 2001 -- from 4.1% in the first quarter.

But businesses kept building inventories strongly, adding to them at a $61.1-billion rate in the second quarter after a $40-billion increase in the first three months of the year.

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Commerce Department officials said the pace of inventory-building in the second quarter was the strongest since a $99.3-billion rate of buildup in the second quarter of 2000.

Inventory accumulation can signal potential economic weakness when it is caused by weaker consumption, but it also can presage strength if companies are loading up on goods because they believe spending will probably snap back.

A substantial part of the inventory buildup has occurred in the auto sector and the big carmakers already are gearing up for rebates and financing incentives to thin out the stocks on dealer lots.

One positive influence on second-quarter GDP came from a downward revision in imports -- which subtract from national output -- and greater exports of both U.S.-made goods and services than reported a month ago.

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