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U.S. economic growth hits 3% rate in second quarter

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A woman carries retail shopping bags in New York City.

WASHINGTON (MarketWatch) — The U.S. economic rebound in the second quarter was stronger than initially reported.

Gross domestic product rose at 3% rate from April to June, up from an initial 2.6% reading, the Commerce Department said Wednesday.

This is the fastest quarterly growth rate in more than two years.

Somewhat stronger consumer spending and business investment were behind the upward revision.

Economists surveyed by MarketWatch expected a smaller upward revision in second-quarter GDP to a 2.8% rate.

The economy picked up from a 1.2% rate in the first quarter. A slow first quarter followed by an improved second quarter also occurred in two of the past three years.

Economists say that the most-recent data suggest the U.S. is on track to maintain a 3%-plus clip in the third quarter.

The last time the U.S. economy had two quarters above 3% was in 2014.

President Donald Trump is relying on growth above 3% to generate enough revenue for the government to pay for tax cuts and more infrastructure spending.

Consumer spending was the main engine for the strength in the second quarter, rising a revised 3.3% in the second quarter. That was up from the government’s original estimate of a 1.9% gain. Americans spent more on goods and services, including car purchases.

Outlays of business investment rose at a revised 0.6% clip in the second quarter, up from a prior 0.4% estimate.

The government reported that corporate adjusted pretax profits were up 6.7% in the past year, despite falling at a 0.5% rate in the second quarter.

The report also confirms that inflation is moved away from the Federal Reserve’s 2% annual target in the second quarter.

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.

As a result, the PCE index decelerated to a 1.6% annual pace in the quarter, down from a 2% rate in the first quarter.

Core PCE slumped to a 1.5% rate from a 1.8% rate in the prior three months.

Soft inflation is raising questions over whether the Fed will go ahead with another interest-rate hike this year. The central bank had penciled in three hikes this year and has already engineered two hikes in the first half of the year.



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