US economy grows 1.7% in second quarter

The US economy grew at a better-than-expected annual rate of 1.7 per cent in the second quarter, an initial government estimate has said.

Gross Domestic Product (GDP) rose during April-June period from a revised 1.1 per cent growth in the first quarter, the Bureau of Economic Analysis said. The first quarter figure was revised downward from the 1.8 per cent released last month.

The US Federal Reserve had said on Wednesday that it would continue its bond-buying programme to bolster the US economy and kept its benchmark interest rate at record low levels.

Economic growth was bolstered by an increase in business investment and exports. However, consumer spending, which accounts for most of the US economy, grew at a slower pace, rising 1.8 per cent, down from a 2.3 per cent increase in the previous quarter.

A decrease in federal government spending continued to weigh on growth, but the cuts had a considerably smaller effect than in the previous quarter.

President Barack Obama had warned that the mandatory across-the-board cuts in government spending would hamper the economy. Federal government spending was down 1.5 per cent in the second quarter after dropping 8.4 per cent in the previous period.

Economists surveyed by Bloomberg financial news had predicted GDP growth of 1 per cent. Meanwhile, growth for last year was revised upward to 2.8 per cent from 2.2 per cent as part for a broad revision of data dating back to 1929, the Commerce Department said.

The US Federal Reserve has been closely monitoring economic growth and inflation as it weighs slowing its bond-buying programme in the coming months as the economy improves.

The latest round of bond buying was launched in September 2012 at a pace of $85 billion a month or about $1 trillion a year in the $16-trillion US economy.

No change had been expected on Wednesday, but Fed chief Ben Bernanke had said last month that step could begin later this year with an eye toward ending the extraordinary monetary policy measures by mid-2014.

The central bank kept its key interest rate near zero, a rate it has maintained since December 2008, and declared its intention not to raise the benchmark rate until the unemployment rate — currently at 7.6 per cent — falls to 6.5 per cent, barring a spike in inflation.

The Fed warned in its statement that inflation below its 2 per cent goal posed a risk to the economy, but noted that it expected inflation to increase to its objective in the medium term.

The Government’s Consumer Price Index was at 1.8 per cent for the 12 months through June. Core inflation, which excludes volatile food and energy prices, was at 1.6 per cent, falling below the Fed’s long-term target of 2 per cent.

A more obscure measure of personal consumption spending — known to be Bernanke’s preferred inflation gauge — was up only 1 per cent for the 12 months through May.

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