(AP)
Updated: 2007-08-30 22:29

In other economic news, the Labor Department reported that the number of newly laid off workers filing for unemployment benefits rose to 334,000 last week, an increase of 9,000 from the previous week. That gain caught analysts by surprise. They had been expecting a decline of around 2,000.

The Fed is seen as having the leeway to cut interest rates because inflation is easing. A key GDP inflation gauge that excludes food and energy rose by just 2 percent in the second quarter, compared to a year ago. That was better than a year-over-year gain of 2.4 percent in the first quarter.

The 4 percent GDP growth rate for the second quarter marked a sharp jump from the anemic 0.6 percent pace turned in during the first three months of the year. It was the fastest GDP increase since a 4.8 percent growth rate in the first three months of 2006.

Since that time, the economy had slowed sharply, reflecting a major drag from housing, which is in its worst slump in 16 years.

The revision from the initial estimate of 3.4 percent second quarter growth reflected an improving trade deficit, with stronger export sales and fewer imports.

Business investment, in the form of rebuilding of inventories, and construction of shopping centers, office buildings and other non-residential projects was also stronger than previously believed.

Consumer spending, which accounts for two-thirds of total economic activity, did show a marked slowdown in the second quarter, growing at an annual rate of 1.4 percent, less than half the first quarter increase.

Housing construction, which had been a standout performer during five boom years, suffered another drop, falling at an annual rate of 11.6 percent, the sixth straight decline in this industry.

The 4 percent GDP revision was slightly below economists' expectations for a 4.1 percent GDP gain in the second quarter.

All of the changes left GDP, after adjusting for inflation, growing at an annual rate of $11.5 trillion in the second quarter.

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