WASHINGTON—Consumer, business and government spending helped propel better-than-expected U.S. growth in the second quarter of the year, a hopeful sign for an economy buffeted by overseas turmoil and sharp gyrations in equity markets.
Gross domestic product, the broadest sum of goods and services produced across the economy, expanded at a 3.7% seasonally adjusted annual rate in the second quarter of 2015, the Commerce Department said Thursday, up from the initial estimate of 2.3% growth.
The latest U.S. numbers stand in contrast to much of the rest of the world, where financial troubles, falling commodity prices or broader uncertainty have been hindering growth. But the sharp U.S. rebound, after a weak start to the year, appears likely to settle back into a familiar up-and-down pattern that equates to overall modest growth.
Indeed, GDP growth averaged only 2.2% during the first half of the year—right in line with the expansion as a whole. "Despite some sharp swings in the quarterly growth rates, we don't look for this to change much," said Richard Moody, chief economist at Regions Financial Corp.
Thursday's GDP numbers offer a backward view of the economy, detailing a three-month stretch that ended in June. Concerns about China have since battered global markets and introduced greater uncertainty into forecasts for the U.S. economy. But economists and policy makers will examine the latest numbers closely for clues on what factors may be adding to growth in the current quarter.
Federal Reserve officials will weigh the latest hard data against volatility in markets as they consider raising the central bank's benchmark interest rate for the first time since 2006 at their next meeting in mid-September. Many economists and some top Fed officials have recently cast doubt on a rate increase next month amid so much China-driven volatility overseas.
"I think the Fed would want to see a little stronger momentum growth in the economy" before raising rates, said Tim Hopper, chief economist at TIAA-CREF. "With financial market turmoil like we've seen over the past week and a half or so, I think that strengthens the argument for a December hike."
The latest GDP numbers show some underlying momentum but also possible headwinds for the U.S. economy.
Consumer spending, representing more than two-thirds of economic output, grew at a 3.1% rate in the second quarter, compared with the initially reported 2.9%. The new reading is a marked improvement from the first quarter's 1.8%, a possible sign of an improving consumer outlook amid steady hiring and lower gasoline prices.
Spending on home building and improvements advanced at a 7.8% pace, compared with a previous reading of 6.6% and a first-quarter gain of 10.1%. Solid readings may carry into the third quarter—July single-family housing starts and existing home sales both have touched new postrecession highs.
And the latest figures on business investment—reflecting spending on construction, equipment, and research and development—are especially welcome. The category rose at a 3.2% pace, compared with an earlier estimate of a 0.6% decline, suggesting a degree of optimism about future demand.
It is less clear whether that will continue amid global uncertainty and economic crosscurrents that are supporting, for example, strong auto sales but suppressing demand for mining equipment.
SWD Inc., an Addison, Ill., maker of fasteners used to bolt together Ford trucks, John Deere tractors, Whirlpool appliances and other goods, invested $ 7.5 million in expansion and capital equipment in 2012 but now is holding off on a roughly $ 5 million project to add more capacity.
"I would have thought we would have a decision by now, but we haven't made it," said Rick Delawder, company president. "We're still trying to gauge what this economy is going to do, what our customers are going to need. Is the economy going to continue to have strength and if it does, that makes our decision much easier."
And inventories—which add to GDP when they are rising—are one factor likely to weigh on growth in the second half of the year. Companies have added heavily to stockpiles, an accumulation of goods that is unlikely to continue into the current quarter.
"Inventories will be a mild drag on growth in the second half of the year," said Stu Hoffman, chief economist at PNC Financial Services.
A stronger dollar and lackluster overseas growth may also squeeze exporters. Net exports contributed 0.23 percentage point to GDP in the second quarter, only the second time since the start of 2014 that trade hasn't been a drag on top-line economic growth.
Government spending offers a final wild card for GDP. Federal expenditures and investment were flat in the second quarter while state and local levels jumped 4.3%, the strongest increase since 2001. That is a positive sign—government spending was a drag through much of the recovery—but the figures are volatile, leaving their impact on the second half uncertain.
Write to Jeffrey Sparshott at jeffrey.sparshott@wsj.com
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