US growth accelerates in 2Q bolstered by consumer spending

WASHINGTON (Reuters) – US economic growth accelerated in the second quarter as solid consumer spending offset the drag from weak business spending on equipment, suggesting a steady momentum that could bring the Federal Reserve closer to hiking interest rates this year.

Gross domestic product expanded at a 2.3 percent annual rate, the Commerce Department said on Thursday. First-quarter GDP, previously reported to have shrunk at a 0.2% pace, was revised up to show it rising at a 0.6% rate.

The revision to first-quarter growth reflected steps taken by the government to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data, as well as new source data.

The Fed on Wednesday described the economy as expanding “moderately” while upgrading its view of the labor market and saying housing had shown “additional” improvement. The Fed’s assessment left the door open for a possible hike in interest rates in September, which would be the first rise since 2006.

A separate report showed first-time applications for state unemployment benefits increased 12,000 last week to a seasonally adjusted 267,000. However, claims remained not too far from their cycle lows.

Though second-quarter GDP growth was a bit below economists’ expectations for a 2.6% rate, the growth composition pointed to firming domestic fundamentals.

A measure of private domestic demand, which excludes trade, inventories and government expenditures, increased at a 2.5% rate after rising at a 2% pace at the start of the year.

Growth in the second quarter was boosted by consumer spending as households used some of the windfall from cheaper gasoline in late 2014 and early this year to go shopping. The strengthening labor market also encouraged consumers to loosen their purse strings.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.9% rate from a downwardly revised 1.8% pace in the first quarter. Consumer spending was previously reported to have increased at a 2.1% rate at the start of the year.