Forex

A boom in exports and tax rebates to tens of millions of Americans helped bolster US economic growth to an annualized 1.9 percent during the second quarter, a government report showed Thursday.

The Commerce Department said that gross domestic product (GDP) growth accelerated from a revised 0.9 percent pace during the first quarter.

Although US economic performance improved, it still fell short of the 2.3 percent hoped for by most economists.

The latest growth snapshot was released ahead of a looming interest rate meeting of the Federal Reserve set for Tuesday. Economists expect the central bank to keep its short-term federal funds rate firmly pegged at 2.0 percent.

The government survey showed a surge in exports had helped fire up growth. An emergency 168-billion-dollar economic stimulus, stuffed with one-off tax rebates, also stoked growth higher.

The review of America's 14-trillion-dollar economy showed that second-quarter growth was the strongest since the third quarter of last year, but economists expressed concern about persisting economic headwinds.

Exports, underpinned by a weak dollar, boomed 9.2 percent during the April-June period, after rising 5.1 percent in the first quarter.

Imports meanwhile declined 6.6 percent, marking a sharper decrease than the 0.8 percent seen in the first quarter.

While the ailing dollar has lifted exports, Americans have shunned foreign purchases which the weak dollar has made more costly.

Exports added 2.42 percentage points to second-quarter growth, but some economists wondered if the export spike could be maintained.

"I'm not so sure those gains are sustainable, exports are likely to slow with the slowdown in Europe and Japan," said Sal Guatieri, an economist at BMO Capital Markets.

Consumer spending by contrast added a mere 1.08 percentage points to quarterly growth.

American consumers are buckling under the weight of a lengthy housing market slowdown and rocketing fuel costs, as a credit crunch grips the banking industry.

Consumer spending rose 1.5 percent during the second quarter against a 0.9 percent gain in the prior quarter despite Americans cutting back on purchases of big-ticket durable goods.

Durable goods, demand for which fell 3.0 percent, include vehicles and cars and household items such as kitchen appliances and computers.

"Consumers used the stimulus check more for basic necessities as opposed to more discretionary items," said Mark Vitner, a senior economist at Wachovia.

Economists watch consumer spending closely because it accounts for some two-thirds of GDP growth.

The government meanwhile revised lower its first-quarter growth estimate to 0.9 percent from 1.0 percent, and significantly trimmed its reading for the fourth quarter of 2007 to show a 0.2 percent contraction from a prior estimate of a 0.6 percent gain.

The decline in fourth-quarter GDP marked the first time US economic growth slipped into negative territory since the recession of 2001 when the economy was hobbled by the September 11 terrorist attacks.

A recession is typically marked by two straight quarters of negative economic growth.

Some economists and stock market investors believe the world's largest economy has slipped into a recession, but the second-quarter growth figure will reassure those who believe the economy will avoid a recession.

A two-year housing slump, which has seen home sales and prices plummet, continued to act as a major drag on growth.

Residential fixed investment fell 15.6 percent during the second quarter, but not as sharply as the revised 25.1 percent in the first quarter.

Housing construction nontheless subtracted 0.62 percentage points from growth showing it continues to act as a brake on economic momentum.

On the inflation front, the GDP price index rose 4.2 percent in the second quarter from 3.6 percent in the first three months of the year, marking a rise in overall price pressures.

The core index, excluding food and energy costs, increased 2.1 percent from a prior 2.3 percent.