Economy bounces back: GDP grows 2.3% in second quarter

The U.S. economy bounced back in the second quarter on stronger consumer spending, exports and home construction, and its performance in the first quarter wasn't as feeble as initially believed.

Gross domestic product — the value of goods and services produced in the U.S. — expanded at a seasonally adjusted annual rate of 2.3% in the April-June period, the Commerce Department said Wednesday. Economists surveyed by Bloomberg expected 2.5% growth.

The government also revised up its estimate for the first quarter, turning a 0.2% contraction into 0.6% growth, mostly because of stronger business investment and federal government spending. The still-weak showing has been largely blamed on temporary factors such as rough weather and a West Coast ports slowdown. Many expect the economy to grow by a solid 3% at an annual rate in the second half of the year.

But the government lowered estimates for 2011 to 2014, revealing that growth in that period was somewhat weaker. The economy expanded by an average annual rate of 2%, below previous estimates of 2.3%

The economy's solid but not spectacular performance in the second quarter could help the Federal Reserve decide whether to raise interest rates for the first time in nearly a decade at its September meeting.

"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," says Capital Economics economist Steve Murphy.

The report paints "a reassuringly bright picture of the health of the U.S. economy so far this year," says Markit's chief economist Chris WIlliamson, and raises "the odds of the Fed hiking interest rates in September."

Strong job and income growth and low gasoline prices prompted Americans to open their wallets in the second quarter as consumer spending increased 2.9%, up from 1.8% in the first quarter. Consumption represents about two thirds of economic activity.

And exports jumped 5.3% after falling 6% previously. The strong dollar has hurt exports but its effects have eased recently. And snarled shipments from the port delays freed up in the spring, temporarily inflating total exports.

Outlays for home construction also jumped 6.6% as tight housing supplies and resurgent sales coaxed builders into expanding inventories..

But business investment overall fell 0.6%, as energy companies continued to scale back drilling amid low oil prices.

And slower business stockpiling subtracted slightly from growth after adding to it in the first three months of the year. Federal government spending also fell modestly.

The economy continues to face some obstacles as it seeks to break out of the tepid growth pattern that has prevailed since the recovery began in 2009. Oil prices have slipped again recently and could further chill drilling activity and reduce orders for steel and other manufactured goods. Low gasoline prices, however, would lead consumers extra spending money.

The economy's modest performance the past several years was partly attributed to softer consumer spending than previously believed.The economy grew 1.6% in 2011, down from the 2.3% first estimated; 2.2% in 2012, versus the 1.5% initial reading; 1.5%, down from 1.7%; and 2.4%, down from 2.7%