Second-quarter economic growth rate bodes well for workers

Fueled by increased business spending and reduced federal spending cuts, the economy grew at a modest 1.7 percent rate between April and June, beating the 1.1. percent growth rate in the first three months of the year, the Commerce Department announced Wednesday.

While growth remains sluggish, the pickup surprised economists who predicted a far weaker second quarter. It suggests the economy could accelerate later this year as businesses step up spending and the drag from prior steep government cuts fades.

The news sounds bright for average Americans, according to Bernard Baumohl, chief global economist at the Economic Outlook Group. 

"What we’re seeing is that most Americans are looking beyond the cuts in the government spending and realize that there is some genuine strength underway in the private economy," Baumohl said, adding that the figures the federal government released today understate a positive trend.

"The outlook for jobs, for income and for spending is a lot better than what the headline numbers suggest. I think it’s very important to keep in mind that the private sector has been doing really well. The corporations have been hiring an average of more than 200,000 a month."

Businesses increased their spending 4.6 percent in the second quarter, and spending on home construction grew 13.4 percent, in line with the previous quarter.

The federal government, meanwhile, cut spending just 1.5 percent after an 8.4 percent reduction in the first quarter. State and local governments also increased spending for the first time in a year.

Consumer spending, the largest engine of the U.S. economy, grew 1.8 percent in the second quarter, a slower gain than the previous quarter's 2.3 percent, the Commerce Department said.

Economists, nonetheless, are hopeful consumer spending will rebound and growth could improve to around 2.5 percent in the third and fourth quarters.

The second-quarter figure indicates "the recovery is gaining momentum," Paul Ashworth, an economist at Capital Economics, said in a note to clients.

There were signs in the report that companies expect demand to pick up. Businesses added to their stockpiles in the second quarter, which is typically a sign they foresee greater sales.

Additionallly, the government has implemented some changes in how it calculates GDP, the report added. Research and development spending, for example, will now be treated as investment and defined benefit pension plans will be measured on an accrual basis, rather than as cash.

The revisions showed that the economy grew at a stronger 2.8 percent in 2012, up from an earlier estimate of 2.2 percent.

Last year's first quarter was revised much higher, while the economy barely expanded in the fourth quarter.

Other recent data have been encouraging and suggest growth will continue to improve.

Home construction, sales and prices have been growing since early last year. Americans purchased newly built homes in June at the fastest pace in five years. That has raised builder confidence to a seven-year high, which should lead to increases in construction and more jobs.

Overall hiring has accelerated this year, as employers added an average of 202,000 jobs a month from January through June. That's up from 180,000 in the previous six months.

And auto sales topped 7.8 million in the first six months of 2013, the best first-half total since 2007. Analysts expect sales will stay strong for the rest of the year.

But threats to a better economic outlook remain. Unemployment, at 7.6 percent, is still limiting consumer spending, and budget fights in Washington could lead to a government shutdown this fall, potentially disrupting the economy.

Federal Reserve officials have forecast better growth in the second half of the year. And Fed Chairman Ben Bernanke has said the central bank could begin to scale back its bond purchases later this year if the economy strengthens. But Fed officials typically put greater weight on employment and inflation data than the GDP figures.

The Fed concludes a two-day policy meeting on Wednesday, at which point it could clarify its interest-rate policies.

Al Jazeera America and wire services