Second Quarter GDP Hiked to 3% in Latest Revision

An auto carrier driver unloads a new Ram pickup truck in Gaithersburg Maryland

Inflation as measured by the Fed's preferred PCE index decelerated sharply to a 0.3% gain in the second quarter down from a 2.2% increase in the first quarter.

Nonresidential fixed investment increased by 6.9 percent in the second quarter, extending the 7.2 percent growth rate from the first quarter.

The Bureau of Economic Analysis had anticipated the increase in real GDP would be 2.6 percent. While the private sector surged ahead, however, government spending shrank, especially at the state and local level. Even with the upward revision, the weak start to the year means that growth over the past six months has averaged 2.1 per cent, the same modest pace seen for the recovery that began in mid-2009. Economists had expected second-quarter growth to be revised up to 2.7%.

President Donald Trump has repeatedly cited as his goal raising USA economic growth at an annual rate of 3 percent after eight years in which former President Barack Obama could not reach this benchmark in any quarter.

But he said 0.4 percentage point of that forecast reflects an assumption that the Trump administration will win a tax cut package that will take effect in early 2018 and the economy will also be boosted by higher spending on the military and infrastructure projects.

"We're still in the slow-lane economy", said Stuart Hoffman, senior economic adviser at PNC Financial Services Group. Volatility has returned, geopolitical tension is rising, and the devastation of Harvey has many observers questioning what's in store for the future, particularly as the USA dollar declines.

The improvement could help make the case for the Federal Reserve to move forward with plans to raise interest rates and wind down the portfolio of securities and other assets it acquired as part of a prior stimulus programme.

Households can not, however, continue to rely on savings indefinitely to fund their consumption.

The higher figure in this revision stemmed largely from stronger consumer and business spending than estimated in the advance release. The report will be released at 8:30 a.m. EDT Wednesday. Inventories added 0.02 percentage point.

Imports, which are a subtraction in the calculation of GDP, increased. Housing was a drag on growth in the last quarter, with investment on homebuilding recording its worst performance in almost seven years.

Consumer spending was the main engine for the strength in the second quarter, rising a revised 3.3% in the second quarter. Motor vehicle production rebounded after two straight quarters of declines.

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