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Economic growth unexpectedly picks up in second quarter

WASHINGTON – Economic growth unexpectedly picked up in the second quarter of the year, expanding at a still-sluggish 1.7 percent annual rate, the Commerce Department said Wednesday.

The figure was a significant improvement over the 1.1 percent growth rate in the first quarter, which was revised down Wednesday from an earlier 1.8 percent estimate.

Analysts had expected economic growth to have slowed down in the second quarter, with economists surveyed by Bloomberg News projecting just 1 percent growth.

Although the initial read on the pace of economic expansion from April through June far exceeded those estimates, it remained weak in the face of tax increases and federal spending cuts that kicked in this year.

Consumer spending took a hit in the second quarter, increasing 1.8 percent after rising 2.3 percent in the first quarter, the Commerce Department said.

“Economic growth remained slow in the second quarter as consumer spending cooled and cuts in federal government spending weighed on economic activity,” said Kathy Bostjancic, director for macroeconomic analysis at the Conference Board.

“However, the U.S. private domestic sector continues to exhibit underlying strength and improved health following several years of major structural adjustments,” she continued. “This improved strength appears to be offsetting the fiscal drag and is poised to get stronger in the second half of the year.”

Economists are projecting growth to improve in the last six months of the year as consumers and businesses adjust to the tax increases and federal spending cuts.

An increase in exports also provided a boost. Exports rose 5.4 percent in the second quarter after dropping 1.3 percent in the first quarter.

Government spending was a drag on growth, though less so than in the first quarter when federal agencies were preparing for the sequestration cuts. Government expenditures decreased 1.5 percent in the second quarter compared to an 8.4 percent drop in the first quarter.