The Commerce Department said the April-to-June increase in the gross domestic product — the country's total output of goods and services — was revised upward by 0.5 percentage point from its estimate just a month ago that the economy expanded at a 2.8 percent pace in the second quarter.
Even with the revision, the 3.3 percent GDP growth rate was down significantly from the 4.5 percent rate of increase turned in during the January-March quarter as consumers, buffeted by rising energy prices, cut back sharply on their spending in other areas during the spring. It marked the slowest growth rate since a 1.9 percent increase in the first three months of 2003.
The upward revision Wednesday in GDP for the second quarter was sure to be cited by the Bush administration as proof that the economy is regaining its footing and the recovery from the 2001 recession remains on track.
However, Democratic presidential challenger John Kerry, arguing that he can do a better job managing the economy than President George W. Bush, contends that the current recovery, especially in the area of jobs production, has been lackluster.
Kerry contends that Bush erred in choosing to boost the economy with tax cuts heavily weighted to the wealthy rather than more targeted middle-class tax cuts that he says would have done more to increase economic demand.
The biggest factor contributing to the upward revision in second quarter GDP growth came from a reduction in the amount of imports coming into the country from the previous estimate. Imports of foreign products, since they are not made in the United States, subtract from GDP growth.
Other factors contributing to the 0.5 percentage point increase in GDP was an upward revision in the estimates of U.S. exports and a larger buildup of inventories than previously believed.
Federal Reserve Chairman Alan Greenspan has called the early summer slowdown a "soft patch" and has predicted that the economy would soon rebound to stronger growth rates, a prediction that private economists worry could turn out to be overly optimistic given a renewed surge in energy costs.
The price of crude oil in trading this week has topped the $50 per barrel mark, a record in dollar terms. Analysts see surging oil prices as a major threat to the expansion because the more consumers spend on energy, the less they have to spend on other goods.
Consumer spending, which accounts for two-thirds of total economic activity, skidded to a near standstill in the spring, growing at an annual rate of just 1.6 percent, the slowest pace in three years. The estimate of consumer spending was unchanged from a month ago.
Inflation showed a slight increase in the spring with an inflation gauge tied to the GDP rising at an annual rate of 3.2, up from a 2.7 percent increase in the first quarter.
The 3.3 percent overall growth rate in the second quarter followed four quarters of extraordinary growth as the economy expanded at rates of 4.1 percent in the spring of 2003 and then 7.4 percent in the summer, the largest surge in 20 years, and 4.2 percent in the fourth quarter last year and 4.5 percent in the first three months of this year.
The administration has pointed to these growth rates as evidence that the three tax cuts during its first three years in office were working to lift the country out of the 2001 recession and the economic shocks stemming from the 2001 terrorist attacks, corporate accounting scandals and worries about future terrorist strikes.
However, Kerry is arguing on the campaign stump that despite these tax cuts, the economy has failed to generate adequate jobs and the jobs that are being created pay significantly less in many cases than the jobs that were lost.
The Fed last week raised interest rates for the third time since June, with Greenspan and other Fed officials arguing that the summer's slowdown will be followed by stronger growth in coming quarters. The Fed increased the target for the federal funds rate from 1.50 percent to 1.75 percent.