Second-quarter growth rate revised up to 1.7 percent

WASHINGTON (Reuters) - U.S. economic growth was a touch higher in the second quarter than previously estimated due to upward revisions to consumer spending and business inventories, but a surge in imports kept the recovery on a weak path, a government report showed on Thursday.

Gross domestic product growth -- which measures total goods and services output within U.S. borders -- was revised up to an annualized rate of 1.7 percent from 1.6 percent, the Commerce Department said in its final estimate.

That compared to financial markets’ expectations for a 1.6 percent pace and represented a sharp slowdown from the first quarter’s 3.7 percent growth rate.

However, data so far suggest a modest pick-up in economic activity in the third quarter.

Although the economy has now grown for four straight quarters, the recovery from the longest and deepest downturn since the Great Depression has lacked strength to chip away at a 9.6 percent unemployment rate.

The Federal Reserve last week signaled it was ready to inject more money into the economy to shore up the recovery and avert a damaging downward spiral in prices.

Growth in the second quarter was supported by consumer spending, which was revised up to a 2.2 percent growth rate, the largest increase in three years, from the previously reported 2.0 percent rise. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 1.9 percent rate in the January-March period.

Business inventories increased $68.8 billion rather than the $63.2 billion reported last month. The change in inventories contributed 0.82 percentage points to second-quarter GDP.

Excluding inventories, the economy expanded at a 0.9 percent pace instead of the 1.0 percent rate reported last month.

But a 33.5 percent jump in imports, which was previously reported as a 32.4 percent increase, kept growth on a weak trajectory. Analysts believe the surge in imports was likely the result of Chinese exporters rushing to push through goods before the expiration of value added tax rebates.

The growth in imports, which was the strongest in 26 years and eclipsed a 9.1 percent rise in exports, created a trade deficit that chopped 3.5 percentage points from GDP.

Analysts do not expect the robust import growth pace to continue, which means trade will be less of a drag on growth in the third quarter.

Business investment was revised a touch lower, to reflect weak spending on structures. Business spending increased at a rate of 17.2 percent, instead of the 17.6 percent reported last month. It was still the largest increase since the first quarter of 2006.

Spending on software and equipment was little changed at a 24.8 percent growth rate. Overall business spending increased at a 7.8 percent pace in the first quarter.

Spending on home building increased at a 25.7 percent rate, slightly down from the 27.2 percent pace reported last month.

The GDP report also showed after tax corporate profits rose 3.9 percent in the second quarter, revised up from 2.9 percent. Profits increased 5.8 percent in the first quarter.

Reporting by Lucia Mutikani; Editing by Andrea Ricci