Economy rebounds in second quarter

The Fed has kept a key interest rate at 5.25 percent for more than a year. Economists predict that rate will stay where it is through the rest of 2007.

The president, after one of his regular meetings with his economic team, praised the economy to reporters: “People are working. The unemployment rate is down. Wages are increasing.”

Bush has been trying to counter weak public-approval ratings for his economic stewardship. Only 37 percent approve of his performance, close to a record low, according to a recent AP-Ipsos poll.

The ailing housing market is still crimping economic activity, but not as much as it had.

Investment in home building was cut by 9.3 percent, on an annualized basis, in the second quarter. That wasn’t nearly as deep as the 16.3 percent annualized drop in the first quarter. It was the smallest cut in just over a year.

Businesses, meanwhile, regained their appetite to spend and invest in the second quarter.

They boosted their spending on new plants, buildings and other commercial construction at a whopping 22.1 percent rate, the most in 13 years. Investment on equipment and software posted a 2.3 percent growth rate, an improvement from a meager 0.3 percent growth rate in the first quarter.

Businesses also replenished their inventories in the second quarter, adding to overall economic growth. Stronger export growth helped the nation’s trade picture and added to the economy’s momentum.

Also contributing to the second quarter’s rebound: Government spending increased at a 4.2 percent pace. That compared with a 0.5 percent annualized drop in the first quarter.

However, consumers, whose spending largely prevented the economy from stalling out in the first three months of this year, lost energy in the second quarter. They boosted spending at a pace of just 1.3 percent, the smallest since the final quarter of 2005.

High gas prices and fallout from the housing slump are beginning to take their toll on peoples’ appetite to spend. Still, a solid jobs climate — the nation’s unemployment rate is at a relatively low 4.5 percent — should help cushion some of these negative forces.

The government also issued annual revisions that showed the economy grew at an average annual rate of 3.2 percent from 2003 through 2006, or 0.3 percentage point less than previously estimated. The revisions are based on more complete data.

Last year the economy grew by 2.9 percent — slower than the 3.3 percent increase previously calculated. The new figure marked the weakest annual growth since 2003 and underscored the depth of the housing slump.

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