(Adds details, analyst comments, background)
* Second-quarter growth raised to 4.2 percent pace
* Business spending, exports account for revisions to GDP
* Jobless claims fell again last week
By Lucia Mutikani
WASHINGTON, Aug 28 The U.S. economy rebounded
more strongly than initially thought in the second quarter with
a bigger chunk of the growth driven by domestic demand in a
bright sign for the future.
Gross domestic product expanded at a 4.2 percent annual rate
instead of the previously reported 4.0 percent pace, the
Commerce Department said on Thursday.
Both business spending and exports were revised higher,
while a buildup in business inventories was smaller than
previously estimated - a mix of growth that provides a stronger
underpinning for the remainder of the year.
Separate reports showing a second straight weekly decline in
the number of Americans filing new claims for jobless benefits
and a jump in home purchase contracts also suggested underlying
momentum in the economy.
"The economy is in good shape and getting better," said Joel
Naroff, chief economist at Naroff Economic Advisers in Holland,
While the economy shrank at a 2.1 percent rate in the first
quarter, economists expect growth of around 2 percent for the
year as a whole, with GDP expanding about 3 percent in 2015.
The dollar firmed against a basket of currencies on the
data, but U.S. stocks were down as traders kept a wary eye on
Ukraine, which accused Russian forces of entering the country.
Prices for U.S. Treasury debt rose as the troubles in Ukraine
triggered flight-to-safety bids.
One report on Thursday showed the number of Americans filing
new applications for jobless aid slipped 1,000 to a seasonally
adjusted 298,000 last week.
In a third report, the National Association of Realtors said
its Pending Home Sales index, which leads home resales by a
month or two, jumped 3.3 percent to an 11-month high in July. It
was the latest sign the housing market recovery was back on
track after faltering in the second half of 2013.
Growth in the second quarter was broad-based, with consumer
and business spending, exports, homebuilding and even government
contributing. Domestic demand rose at its fastest pace in four
years, pointing to a recovery that was becoming more durable
after the first-quarter's weather-induced slump.
Still, the data was unlikely to lead the Federal Reserve to
bring forward the timing of interest rates hikes as slack still
exists in the labor market and inflation will likely remain
below the U.S. central bank's 2 percent target.
"We still have a long way to go. Hence, the Fed remains
cautious about how rapidly it will raise rates when they start,"
said Diane Swonk, chief economist at Mesirow Financial in
Economists had expected the second-quarter GDP growth pace
would be revised down to 3.9 percent.
Gross domestic income, which measures the income side of the
growth ledger, surged at a 4.7 percent rate, consistent with
strong job gains during the quarter. That was the fastest
increase since the first quarter of 2012.
While first-quarter growth in household disposable income
was revised down, the second quarter estimate was more robust
than previously reported - a good omen for future spending.
At the same time, after-tax corporate profits rebounded from
a decline to hit a three-year high, and business spending on
equipment and nonresidential structures, such as gas drilling,
was revised sharply higher.
The amount of stock accumulated by businesses was a bit less
than initially reported, reducing the estimated contribution of
inventories to GDP growth to 1.39 percentage points from 1.66
The relatively smaller inventory build means less stock
overhang, which bodes well for third-quarter GDP growth.
While trade was a drag for a second consecutive quarter,
export growth was raised to its fastest pace since the fourth
quarter of 2010.
(Reporting by Lucia Mutikani; Editing by Andrea Ricci)