GDP Revised Up in Second Quarter

A slowdown in U.S. economic growth during the second quarter of the year was not as sharp as previously thought, the Commerce Department (search) reported on Wednesday, partly because businesses built up inventories at the strongest rate in four years.

U.S. gross domestic product (search) — the measure of total output within the nation's borders — expanded at a revised 3.3 percent annual rate in the April-June second quarter. That was up from a 2.8 percent rate the government estimated a month ago but still the slowest rate of GDP advance since the first quarter of 2003.

The figure was the second and final revision to second-quarter GDP performance and handily outpaced Wall Street economists' forecasts for a 3 percent rate of growth. Though well down from the first quarter's 4.5 percent rate of expansion, it left the economy in better shape than anticipated for a widely forecast pickup in growth in the second half of the year.

The main reason for the second-quarter falloff after a vigorous first quarter was weaker consumer spending (search), which eased to a 1.6 percent annual rate — the softest since 1 percent in the second quarter of 2001 — from 4.1 percent in the first quarter.

But businesses kept adding to inventories strongly, adding to them at a $61.1 billion rate in the second quarter after a $40 billion increase in the first three months of the year. Commerce officials said it was the largest addition to business inventories since a $99.3-billion rate of buildup in the second quarter of 2000.

Inventory accumulation can be a sign of potential economic weakness, to the extent that it reflects less consumption, but it also is considered a strength since it keeps factories busy and reflects confidence that spending likely will snap back in future.