Sept. 29 (Bloomberg) -- The U.S. economy expanded at a 3.3 percent annual pace from April through June, faster than previously estimated, amid a quicker pace of inventory building and smaller trade gap than calculated earlier.

The final number for second-quarter gross domestic product, the total of goods and services produced, exceeded the 2.8 percent estimate issued on Aug. 27, the Commerce Department said in Washington. The U.S. economy, the world's largest, grew at a 4.5 percent rate in the first quarter.

Growth was still the slowest in more than a year as record gasoline prices held back consumer spending. Economists including Federal Reserve Chairman Alan Greenspan say the expansion very likely regained momentum from July through September, helped by business investment and the return of shoppers to stores.

``Consumer spending is doing OK, business spending is going at a good pace, and the government is spending a lot as well,'' Michael Moran, chief economist at Daiwa Securities America Inc., said before the report. ``There's going to be some dampening influence from energy prices.''

The economy is the top issue for voters as President George W. Bush seeks to withstand a challenge from Democrat John F. Kerry, a four-term U.S. senator from Massachusetts, according to a Washington Post-ABC News poll released this week.

Forecasts

The median forecast of 76 economists in survey by Bloomberg News called for the final report to show a 3 percent growth rate, matching the government's first estimate back on July 30. The Commerce Department revises GDP over the course of three months as more data become available.

The economy may expand 4.3 percent this year, according to a separate survey taken Aug. 30 to Sept. 8. That compares with 3 percent growth for all of 2003.

Consumer spending, which accounts for 70 percent of the economy, grew at an unrevised 1.6 percent annual rate in the second quarter, compared with a 4.1 percent rate for January through March. The second-quarter rate is the slowest since 1 percent in the second quarter of 2001, when the U.S. was in a recession.

Government spending, which accounts for the second-largest share of GDP at about 19 percent, increased 2.2 percent at an annual pace in the second quarter, compared with a rise of 2.5 percent January through March. Military spending slowed, while federal non-defense spending and spending by state and local governments grew.

`Some Traction'

Greenspan told the Senate Banking Committee on July 20 that he detected ``softness in consumer spending of late, a softness which should prove short-lived.'' The Federal Open Market Committee has raised the benchmark interest rate twice since Greenspan made those comments.

After the last increase, to 1.75 percent from 1.50 percent on Sept. 21, the committee said the economy ``appears to have regained some traction.''

Corporate profits after taxes, with inventory valuation and capital consumption adjustments, rose 18.5 percent in the 12 months that ended in June, reported earlier as a 17.9 percent gain.

The final report showed no change in previous assessments of two inflation measures.

The GDP price deflator rose at a 3.2 percent annual rate, compared with a 2.7 percent rise in the first quarter. The second- quarter deflator is the highest since 3.3 percent in the first quarter of 2001.

Core Inflation

The core personal consumer expenditures price index, a measure of inflation watched by Fed policy makers, increased at a 1.7 percent rate, compared with a 2.1 percent pace in the first three months of the year. The measure is within the central bankers' forecast of 1.5 percent to 2 percent for the year.

Adjusted for inflation, GDP totaled $10.8 trillion in the second quarter when measured at an annual rate. Unadjusted, GDP rose at 6.6 percent annual rate, and totaled $11.7 trillion, after rising at a 7.4 percent pace in the first quarter.

The final estimate for the second quarter showed that the trade deficit deteriorated to $580.3 billion, measured at an annual rate, from $550.1 billion in the first quarter. The second quarter trade gap was reported at $588.7 billion a month ago.

Inventories

Inventories grew $61.1 billion at an annual rate, up from the $57.7 billion rate the government reported earlier. Stockpiles grew at a $40 billion rate in the first quarter. Inventories added almost eight-tenths of a percentage point to second-quarter growth, initially estimated as less than seven-tenths, compared with 1.17 percentage points in the first quarter.

Business fixed investment, which includes spending on commercial construction as well as equipment and software, grew at a 12.5 percent annual rate in the second quarter, compared with the 12.1 percent rate previously reported and a 4.2 percent pace in the first quarter. Spending on software and equipment rose 14.2 percent at an annual pace, faster than the 13.6 percent rate estimated last month and a rise of 8 percent in the first quarter.

Consumers became hesitant to shop after increased to a record $2.06 for a gallon of regular in May, and oil exceeded $40 a barrel for the first time since 1990 during the month.

Energy prices climbed again this month.

Crude oil in New York passed a record $50 a barrel this week after Nigerian rebels threatened oil output and Hurricane Ivan slashed production in the U.S. Gulf of Mexico. A gallon of regular climbed to almost $1.92 in the past week, the Energy Department reported two days ago.

Consumer Spending

As a result, consumer spending may slow again in the final three months of the year after increasing to a 3.5 percent rate of growth in the present quarter, which ends tomorrow, said Gary Bigg, an economist at Banc of America Securities LLC in New York. The forecast exceeds the 3.3 percent median in a Bloomberg News survey earlier this month.

Sales gains at U.S. retailers including Target Corp. and Federated Department Stores Inc. are expected to slow to 4.5 percent this holiday season from a 5.1 percent gain a year earlier, according to the National Retail Federation, a Washington- based trade group that represents 2,000 merchants and suppliers.

Improved job growth may underpin consumer spending. The economy added 144,000 workers in August, compared with 73,000 added in July. The median forecast before a report Oct. 8 from the Labor Department calls for 155,000 jobs to be added this month.

Business Investment

Business investment may bolster hiring and help sustain consumer spending in the second half.

Bank of America Corp., of Charlotte, North Carolina, the third-biggest U.S. bank by assets, is buying 180,000 phones from Cisco Systems Inc. that transmit calls over the Internet, the companies said yesterday. Cisco, based in San Jose, California, is the world's largest maker of computer networking equipment.

Dell Inc., the world's largest maker of personal computers, expects growth in computer sales will improve in the next few years, Chief Executive Kevin Rollins said yesterday.

``We do believe that the corporate buying cycle has improved and will move on at a good steady rate, not an explosive rate, in the next few years,'' Rollins said in Sydney. The Round Rock, Texas, company gets about 85 percent of its revenue from sales to companies and governments, he said.

To contact the reporter on this story; Joe Richter in Washington jrichter1@bloomberg.net

Last Updated: September 29, 2004 08:30 EDT