GDP growth revised down, prices tame

WASHINGTON (Reuters) - Healthy business investment helped the U.S. economy grow at a revised 3.8 percent annual rate in the second quarter, slightly less than previously thought because of brisker demand for foreign goods and services, the Commerce Department said on Thursday.

The department estimated a month ago that gross domestic product, which measures total output of goods and services within U.S. borders, grew at a 4 percent rate. But it revised that down in its final reading of second-quarter performance on the basis of updated trade data.

Growth in the April-June second quarter was in line with economists' expectations and handily eclipsed the first quarter's anemic 0.6 percent rate.

The pace of expansion is forecast to slow in coming quarters because credit problems that originated in subprime mortgage markets are expected to make consumers more reluctant to spend and businesses wary about investing in new plants and equipment.

The first estimate of performance in the third quarter, which ends on Sunday, will be released on October 31.

The U.S. Federal Reserve cut official interest rates by a half-percentage point last week, saying it wanted to try to forestall some of the impact of a credit squeeze, which policy-makers fear will take a toll on both U.S. and global expansion.

Consumer spending, which accounts for more than two-thirds of national economic activity, was left unrevised at a 1.4 percent growth rate in the second quarter, slowing from 3.7 percent increase in the first quarter.

Business investment was revised down to an 11 percent annual growth rate from 11.1 percent estimated a month ago, still far ahead of the first quarter's 2.1 percent rate of increase and the strongest since the first quarter of last year.

There was little sign of inflation pressure. So-called core prices, which exclude food and energy items, increased at a revised 1.4 percent annual rate instead of 1.3 percent estimated a month ago. That was well below the 2.4 percent rate of core price rises in the first quarter and was the slowest pace of price rises in four years.

Corporate profits remained solid, rising at a revised 5.2 percent rate in the second quarter instead of 5.4 percent estimated a month ago. That was well ahead of the 1.5 percent rate of profits increase posted in the first three months of the year.