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Economy grew at faster pace than first thought in 2nd quarter

The economy's pace was more like a turtle than a snail in the second quarter.

The Commerce Department reported Wednesday that it had revised slightly upward its initial estimate for second quarter gross domestic product to a rate of 1.7 percent from 1.5 percent. The first quarter's pace remained at 2.0 percent.

The government report attributed the increase to exports and personal spending which offset sluggish state and local government spending and slow restocking of inventories by businesses wary of the economic environment at home and overseas.

The report also showed that after-tax corporate profits unexpectedly rose at 1.1 percent rate after sinking 8.6 percent in the first quarter.

While the composition of economic activity was fairly favorable, growth remains well below the 2-2.5 percent rate required every quarter to hold the unemployment rate steady, which could compel policymakers at the Federal Reserve to offer additional stimulus at their September 12-13 meeting.

Speculation the Fed would loosen policy further had been dampened by a pick-up in job growth and a rebound in retail sales in July, but other data on business spending and inflation supported more action.

Chairman Ben Bernanke could offer more clarity in the near-term outlook for monetary policy when he gives a speech at the Kansas City Fed's high-profile gathering in Jackson Hole, Wyo., at the end of the week.

The jobless rate rose to 8.3 percent in July from 8.2 percent the prior month. The weak economy could be a stumbling block to President Barack Obama's quest for a second-term in office in November.

First-quarter economic growth was revised up to show strong export growth, despite slowing global demand. Trade contributed 0.32 percentage point to GDP growth instead of subtracting a third of a percentage point, as previously reported.

That helped to offset the drag from inventories. Business inventories increased $49.9 billion instead of $66.3 billion and subtracted 0.23 percentage point from GDP growth in the April-June period. However, the careful management of stocks can be a boost to the economy in the third quarter.

Excluding inventories, GDP rose at a 2.0 percent rate rather than 1.2 percent. In the first quarter, final sales of goods and services produced in the United States increased at a 2.4 percent pace.

There were also upward revisions to growth in consumer spending, which was bumped up to a 1.7 percent pace from the previously reported 1.5 percent. That was a step-down from the 2.4 percent pace recorded in the first quarter.

Investment in the construction of nonresidential structures was stronger than previously reported. But growth in business investment in equipment and software was lowered to a 4.7 percent pace, the slowest since the third quarter of 2009, from 7.2 percent previously.

Spending by businesses on equipment and software has slowed sharply from a peak of 18.3 percent in the third quarter of last year.

That appears to have intensified early this quarter, with a measure of business spending plans falling sharply in July. The pullback likely reflects worries of deep government spending cuts and higher taxes scheduled to kick in at the start of 2013, as well as troubles from the debt crisis in Europe.

Growth in spending on homebuilding was cut to an 8.9 percent rate from 9.7 percent. The decline in government spending was not as deep as previously reported, with defense outlays falling at a 0.1 percent rate instead of 0.4 percent.

Though consumer spending was revised up, inflation pressures remained muted.

A price index for personal spending rose at an unrevised 0.7 percent, the slowest pace since the second quarter of 2010. It rose 2.5 percent in the first quarter.

A core measure that strips out food and energy costs advanced at an unrevised 1.8 percent pace, slowing down from 2.2 percent in the prior quarter.

Reuters contributed to this report.

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