U.S. GDP revised up to 3.3%, could be strongest for some time

By Greg Robb, MarketWatch

Last update: 8:31 a.m. EDT Aug. 28, 2008

WASHINGTON (MarketWatch) -- U.S. economic growth in the second quarter was a whole lot stronger than previously believed, but may represent the high-water mark for the economy for at least the next year.

The U.S. economy grew at a 3.3% real annual pace in the April-June quarter, the fastest pace in since the third quarter of last year, the Commerce Department reported Thursday. This was almost double the initial 1.9% estimate reported last month

Final sales increased 4.8% annualized, much better than last month's estimate of 3.9%.

Core consumer prices rose at a 2.1% annual pace in the quarter, unrevised from the initial estimate.

Economy-wide inflation jumped 4.2% in the quarter.

The upward revision to gross domestic product was largely due to larger exports and larger inventory accumulation. Economists surveyed by MarketWatch were expecting a revision to 2.7%. The strength in the quarter was powered by stimulus checks from Uncle Sam.

The economy grew 0.9% in the first quarter after slipping 0.2% in the final three months of 2007. Over the past year, the economy has grown 2.2%.

In nominal terms, GDP grew at a 4.6% annual pace to $14.31 trillion annualized.

In general, economists hold the view that the strong growth in the second quarter is not going to be matched or exceeded for the foreseeable future.

Economists expect growth to slip to a 2% rate in the third quarter and forecasts for fourth-quarter growth are downright grim.

The Federal Reserve staff recently cut their forecast for growth over the next year, saying the economy isn't likely to rebound until next summer.

Weak banks, exhausted consumers, and cautious hiring are expected to drag down growth in coming quarters. And with no end in sight for the drop in house prices, economists are unable to see an end to the financial market stress that is holding back activity.

Analysts are nearly unanimous in their prediction of no change in interest rates until next year even though the central bankers will be uncomfortable leaving rates at the current 2% level for too long.

Details

Exports rose 13.2%, revised from an increase of 9.2%. Meanwhile, imports fell 7.6%. The trade deficit added 3.1% to growth.

Real consumer spending increased 1.7% annualized, compared with the earlier 1.5% initial estimate. Spending on durable goods fell 2.5%, spending on nondurable goods rose 4.2% and spending on services increased 1.3%.

Consumer spending contributed 1.2 percentage points to growth.

Investments in houses dropped at a 3.2% annual pace, revised from 3.4% earlier. Residential investments cut 0.6 percentage point from growth, the tenth consecutive quarter that housing has been a drag on growth.

Business fixed investments shrank at a 2.5% annual pace, revised up from 2.4% earlier. Investments in equipment and software fell 3.2%, while investments in structures increased 2.2%. Business investments cut 0.4 percentage points from growth.

Inventories shrank by a revised $49.4 billion, compared with the initial estimate of $62.2 billion. The change in inventory investment cut 1.4 percentage point from growth, down

Growth revised much higher in second quarter

U.S. GDP revised up to 3.3%, could be strongest for some time

Pending home sales index rises 5.3% in June