US GDP grows 2.5% in second quarter

The reports may boost confidence that the economy is turning a corner despite government austerity measures

The US economy accelerated more quickly than expected in the second quarter thanks to a surge in exports, bolstering the case for the Federal Reserve to wind down a major economic stimulus program.

Other economic data on Thursday showed the number of Americans filing new claims for jobless benefits fell last week, a potential sign of faster hiring in August.

US gross domestic product grew at a 2.5 per cent annual rate in the April-June period, according to revised estimates released by the Commerce Department. That was more than double the pace clocked in the prior three months.

The reports could boost confidence that the economy is turning a corner despite government austerity measures and a still-high jobless rate.

The government had initially estimated that GDP expanded at a 1.7 per cent rate in the second quarter. But recent data on trade showed that exports climbed during the period at their fastest pace in over two years.

The government also said data from retailers showed that businesses had restocked their shelves at a faster pace in the April-June period than initially estimated.

Economists polled by Reuters had forecast the economy growing at a 2.2 percent pace. Many economists expect the economy will accelerate further in the second half of the year as austerity measures begin to weigh less on national output.

That drag was evident in the second quarter, when spending contracted at all levels of government. Indeed, Thursday's data showed the economic drag from spending cuts was greater in the second quarter than initially estimated.

Still, the data could make officials at the U.S. central bank more confident in their plan to begin reducing monthly bond purchases later this year.

"The market will take (the data as a sign that) tapering would be more likely next month," said Scott Brown, an economist at Raymond James in St. Petersburg, Florida.

Yields rose on U.S. government debt and the dollar strengthened against the euro.

The Fed's program has reduced borrowing costs and helped spark a recovery in the nation's housing market, which collapsed during the 2007-09 recession.

In the second quarter, investments in housing accounted for nearly a fifth of the economy's growth during the period.

However, other reports have suggested that housing began to look more shaky toward the end of the quarter. Expectations that the Fed could trim its $85 billion in monthly bond purchases as early as September have driven mortgage rates sharply higher since May.

The bond-buying program is one of America's last major economic stimulus programs, as the federal government's fiscal austerity began dragging on the economy in late 2010.

In the second quarter, higher taxes appeared to hold consumers back. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, slowed to a 1.8 percent growth pace after rising at a 2.3 percent rate in the first quarter.

Corporate profits, however, unexpectedly climbed in the second quarter. After subtracting taxes paid by corporations, profits rose at a 4.2 percent annual rate, the fastest gain since late 2011.

A separate report showed the number of Americans filing new claims for unemployment benefits fell in line with expectations.

Initial claims for state unemployment benefits slipped 6,000 to a seasonally adjusted 331,000, the Labor Department said. Claims have not strayed too far from the 330,000 level since mid-July, bolstering expectations of an acceleration in the pace of employment gains in August.