31 July 2013, 18:04  Economic activity in the U.S. increases

Economic activity in the U.S. increased at a faster than expected rate in the second quarter, according to a report released by the Commerce Department on Wednesday, although the report also showed a notable downward revision to the pace of growth in the first quarter. The Commerce Department said gross domestic product increased by 1.7 percent in the second quarter following a revised 1.1 percent increase in the first quarter. Economists had expected GDP to rise by 1.1 percent compared to the 1.8 percent growth that had been reported for the previous quarter. The stronger than expected GDP growth reflected positive contributions from consumer spending, exports, non-residential fixed investment, private inventory investment, and residential investment. However, the positive contributions were partly offset by a negative contribution from federal government spending and an increase in imports, which are a subtraction in the calculation of GDP. The Commerce Department said the acceleration in the pace of GDP growth compared to the previous quarter primarily reflected upturns in non-residential fixed investment and in exports, a smaller decrease in federal government spending, and an upturn in state and local government spending. Meanwhile, the report said consumer spending increased by 1.8 percent in the second quarter, reflecting a slowdown from the 2.3 percent growth seen in the first quarter. Sal Guatieri, Senior Economist at BMO Capital Markets, said, "The U.S. economy grew modestly in the second quarter because of hefty fiscal restraint, but growth exceeded expectations and looks to turn convincingly higher in the second half of the year." "Today's report should not affect the outcome of the Fed's policy meeting, where official rates and the pace of asset purchases are expected to remain steady, though the statement will likely adopt a dovish tone," he added. On the inflation front, the Commerce Department's reading on core consumer prices, which exclude food and energy prices, rose by 0.8 percent in the second quarter following a 1.4 percent increase in the first quarter.

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