US economy posts solid 2.3 percent growth rate in Q2

WASHINGTON (AP) - The U.S. economy posted a solid rebound in the April-June quarter after a harsh winter, led by a surge in consumer spending and a recovery in foreign trade that bode well for the rest of the year.

It also ended up squeezing out some growth in the first quarter, reversing an earlier estimate the economy shrank at the start of the year.

The Commerce Department said Thursday that the gross domestic product, the economy's total output of goods and services, grew at a 2.3 percent annual rate in the second quarter. The government also said GDP in the January-March period grew 0.6 percent instead of shrinking at a 0.2 percent pace.

The latest results mirror a familiar pattern over the last few years. The economy has consistently underperformed in the first quarter and then revved up in the spring and summer. The uneven momentum has contributed to overall tepid growth since the Great Recession officially ended in June 2009. It's been the slowest recovery since World War II.

Revised GDP figures for the past three years released by the government Thursday reveal the economy's already-modest growth since 2011 was even weaker than thought.

Economists, however, are hopeful about the rest of 2015. They expect overall GDP growth to continue strengthening in the second half of this year to around 3 percent, as consumer spending benefits from sizable employment gains. The upbeat outlook explains why the Federal Reserve appears on track to start raising interest rates this year.

On Wednesday, the Fed noted the job market, housing and consumer spending have all improved. But it kept a key rate at a record low near zero, where it's remained since 2008. The Fed said it still needs to see some more gains in the job market and feel reasonably confident that low inflation will move back to its 2 percent target rate.

Many economists peg September for the first rate hike, while others say the Fed might wait until the end of the year.

"The second-quarter U.S. GDP data support the Fed's more upbeat tone on economic conditions and suggests that the economy could cope with higher interest rates," said Steve Murphy, U.S. economist with Capital Economics.

The Fed, which has been worried inflation has hovered consistently below its 2 percent target, got some better news on that front. The new GDP report showed overall prices, which had been declining for two quarters because of the steep plunge in oil prices, rose at a 2.2 percent rate in the second quarter. Excluding food and energy, prices accelerated 1.8 percent from 1 percent gains in the previous two quarters.

"The economy is not booming along but that doesn't mean it is soft either," said Joel Naroff, chief economist at Naroff Economic Advisors. "It is growing fast enough to keep job gains at a level so that the unemployment rate will continue declining."

Naroff said economic data over the next two months will determine the Fed's timing.

The second quarter growth figure was the best showing since a gain of 4.3 percent in the third quarter of last year. The GDP report was the government's first of three estimates.