US economy grows sluggish 1.7% in Q2

The US economy grew 1.7 percent in the second quarter after a 1.1 percent pace in the first quarter, according to the Commerce Department report released Wednesday.

The second-quarter growth rate, while better than the average analyst estimate of 1.1 percent, still showed the world's largest economy stuck in the doldrums four years after exiting the Great Recession.

The Commerce Department sharply revised the first-quarter rate to 1.1 percent from the prior 1.8 percent reading.

The GDP report was accompanied by extensive revisions to GDP data back to 1929, done roughly every five years.

Barclays analysts, in a research note, said that downward revisions to growth in the previous four quarters "mean that the underlying trend is no stronger."

Jim O'Sullivan, chief US economist at High Frequency Economics, said the report did not change HFE's expectations that GDP growth will pick up in the third and fourth quarters as the drag from fiscal tightening fades.

The Federal Reserve, holding a second and final day of a monetary policy meeting, likely shares that view of the economy's expansion, he said.

The Fed has said it would begin to taper its $85 billion-a-month asset-purchase program if the economy continued to improve.

"We still expect they will move a step closer to tapering today," O'Sullivan said of the Fed.

The second-quarter GDP report revealed a slowdown in consumer spending, which accounts for two-thirds of US economic activity.

Personal consumption expenditures increased only 1.8 percent after a 2.3 percent rise in the first three months of the year.

Exports provided a boost, jumping 5.4 percent and wiping out the prior quarter's 1.3 percent decline.

Nonresidential fixed investment rebounded and a build up in private inventories added 0.41 percentage point to growth.

The drag caused by federal government spending and investment cuts narrowed, falling 1.5 percent after a more than 8 percent drop in the first quarter.

"The most important thing today's data tells us is that the US economy continues to grow far too slowly to reliably improve job prospects; it remains far from healed from the Great Recession, and the root problem remains deficient demand -- a problem exacerbated by austerity," said Josh Bivens of the Economic Policy Institute.