GDP Report Is Better Than Economists Expected

Gross domestic product, or GDP, grew at an annual rate of 1.7 percent in the second quarter, compared with 1.1 percent in the previous quarter. This may mean that the economy is weathering government spending cuts without sustaining much damage.

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DAVID GREENE, HOST:

NPR's business news starts begins with some surprising economic growth.

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GREENE: The U.S. Commerce Department says the economy grew at an unexpectedly swift pace during the second quarter of the year. The Gross Domestic Product, or GDP, grew at an annual rate of 1.7 percent. That compares to the first quarter, when it grew at 1.1 percent. As NPR's Yuki Noguchi reports, this might mean the economy has not been hit hard by the automatic government spending cuts known as sequestration.

YUKI NOGUCHI, BYLINE: Most economists had warned that the middle part of the year would be the toughest patch. But so far, that seems not to be the case.

MARK VITNER: Spending was pretty strong in the second quarter. It rose at a 1.8 percent annual rate, but spending on goods rose at a 3.4 percent pace, and we saw a big pickup in car sales.

NOGUCHI: Mark Vitner is a senior economist at Wells Fargo. He says because consumption drives most of the U.S. economy, that higher spending by consumers helped boost second-quarter numbers. That was offset, as predicted, by lower government spending.

VITNER: The areas of greatest weakness were mainly in the public sector. It was government that was a big drag on economic growth during the first half of the year.

NOGUCHI: Vitner says the surprise is that the economy seems to have shrugged off most of the effects of the sequester, the automatic spending cuts. Though the federal government is still cutting, state and local governments are starting to rebound, he says. Vitner, along with other economists, expect the second half of the year to be still stronger, but lower than an economic growth rate that's normal in a recovery.

VITNER: And really, the story is much the same. We've got a recovery that's in slow motion.

NOGUCHI: From an historical perspective, from 1929 until last year, the average annual growth rate was more than 3 percent. But Vitner says that number is history.

VITNER: We're not going to get back to the way things used to be. We're headed somewhere else, and that's not necessarily a bad thing.

NOGUCHI: That is to say, a growth rate that's lower, but healthier and based on less debt and easy credit. Yuki Noguchi, NPR News, Washington.

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