Second quarter growth stronger than thought

Jeannine Aversa

Thursday, Aug. 28, 2003 | 11:33 a.m.

WASHINGTON -- The U.S. economy emerged from the doldrums in the second quarter of this year and grew at a solid 3.1 percent annual rate, a better performance than the government thought just a month ago.

The revised reading on gross domestic product released by the Commerce Department today showed the economy picking up more speed in the April to June quarter than the 2.4 percent growth rate first estimated.

The 0.7 percentage-point improvement to GDP reflected more military spending for the Iraq war and more robust spending by consumers and businesses than the government previously thought. The revised second-quarter reading was stronger than the 2.9 percent growth rate economists were expecting and marked the economy's best performance since the third quarter of 2002.

The rebound came after two straight quarters of anemic economic growth. GDP, which measures the value of all goods and services produced within the United States, increased at just a 1.4 percent pace in the final quarter of 2002 and the first three months of this year.

In a second report, new claims for unemployment benefits rose by a seasonally adjusted 3,000 to 394,000 last week, the Labor Department said. Even with the increase, claims remained below 400,000, a level associated with a weak job market. That offered hope that the pace of layoffs is stabilizing.

Amid signs of an economic rebound, the Federal Reserve earlier this month decided to hold a key short-term interest rate at a 45-year low of 1 percent and hinted that the rate may stay at this low level for some time.

Economists are predicting that the economy will pick up speed in the second half of this year, with some estimating that growth will clock in at an annual rate of 3.5 percent or more.

Near rock-bottom short-term borrowing costs along with fatter paychecks and other incentives coming from President Bush's third tax cut should motivate consumers and businesses to spend and invest more, thus boosting economic growth.