Updated from 10:09 a.m. EDT
The U.S. economy roared ahead in the second quarter with unexpected vigor, casting doubt on the slowdown in economic activity dicussed by
in recent testimony and raising the odds that the central bank will resume raising interest rates when its policymaking committee meets in August.
gross domestic product
, a broad measure of the nation's economic growth, rose at a 5.2% annualized pace in the second quarter, faster than the 4.8% reported for the first quarter, the
said Friday. The news comes as a surprise to economists and investors, who had been anticipating a slower 3.8% annualized GDP growth rate, according to a
The solid economic growth was broad-based, driven by high levels of business investment and still-strong, although slower, growth in consumer spending.
The stunning pace of growth might lead Greenspan and other policymakers on the
Federal Open Market Committee
to rethink their recent assertions that portions of the economy, including consumer spending, slowed to a more sustainable rate in the second quarter. The committee meets next on Aug. 22.
Indeed, consumer spending did slow to a 3.0% rate from the 7.6% rate in the first quarter. Real final sales, which do not include items sold into inventory, grew at a 4.2% rate, compared with 6.7% in the first quarter. But economists said that overall, consumer spending remains near historically high levels, and likely will continue to be buoyed by the wide availability of jobs and rising consumer confidence.
"Sales remain extraordinarily high, too high to be sustained at these levels," said Dr. Sung Won Sohn, chief economist at
Wells Fargo Bank
Meanwhile, business spending continued to rise steeply, offsetting any slowdown in consumer spending. Business spending grew at a sharp 19.1% pace in the second quarter after growing at a 21% rate in the first quarter, helped by heavy spending on computer equipment, software, machinery and other capital expenditures. Commerce said that business spending added 2.4 percentage points to the overall second-quarter GDP.
"This type of business spending is causing growth that will lead to even tighter job markets," which could accelerate growth in wages and salaries, according to Sohn. That, he said, heightens the risk of "cost-push" inflation, where businesses pass the higher worker costs along in the prices for their goods and services.
recent testimony to Congress, Greenspan departed from his typically cautious and cryptic tone and expressed his belief that higher household debt, the near-saturation of consumers' appetite for such durable goods as automobiles and appliances, and stagnant stock prices might be acting act as a drag on economic growth, reducing the risk of inflation.
The Fed has raised short-term interest rates six times in the past year in an attempt to deflect inflation by making it more costly for consumers and businesses to borrow and spend. At their most recent meeting in June, the Fed's policymakers decided to keep interest rates steady, citing "tentative and preliminary" signs of slower growth in the second quarter.
But the strong pace of growth reported Friday flies in the face of the assertion that the economy slowed in the second quarter. The solid GDP growth -- plus more recent rebounds in
home sales and consumer confidence -- may be undermining Greenspan's vision of a significantly slower economy.
In inflation-adjusted dollar terms, annualized GDP in the second quarter totaled $9.309 trillion in the second quarter, compared with $9.192 trillion in the first quarter, the Commerce said.
Despite the accelerated growth, the report showed few signs of accelerating inflation. The GDP chain-weighted price index, a measure of consumer price growth, slowed to a 2.3% rate, down from the 3.5% pace in the first quarter.