WASHINGTON (AP) — The U.S. economy grew from April through June at an annual rate of 1.7% — 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 down its estimate of growth in the January-March quarter to a 1.1% annual rate from a previously estimated 1.8% rate.
Though growth remains weak, the pickup last quarter supports forecasts that the economy will accelerate in 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% after cutting by the same amount in the January-March period. And spending on home construction grew 13.4%, in line with the previous quarter.
At the same time, the federal government cut spending only 1.5% after slashing it 8.4% 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 the past 12 months. Over the past four quarters, the economy has grown at just a 1.4% annual rate. But if you exclude federal, state and local governments, the private sector has expanded at a much stronger 2.3% rate.
The “ongoing fiscal drag is masking private sector health,” said Joseph LaVorgna, an economist at Deutsche Bank, said.
The weaker growth in consumer spending last quarter was significant because consumers account for about 70% 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% in the third and fourth quarters.
Some signs in the report suggest that companies expect demand to pick up. Businesses added to their stockpiles last quarter — typically a sign that they foresee higher sales.
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.