U.S. gross domestic product grew at 3.1% rate in 2nd quarter WASHINGTON, Aug. 28 The U.S. economy emerged from the doldrums in the second quarter of this year and grew at a solid 3.1 percent annual rate, a better performance than the government thought just a month ago. THE REVISED READING on gross domestic product released by the Commerce Department Thursday showed the economy picking up more speed in the April to June quarter than the 2.4 percent growth rate first estimated. The 0.7 percentage-point improvement to GDP reflected more military spending for the Iraq war and more robust spending by consumers and businesses than the government previously thought. The revised second quarter reading was stronger than the 2.9 percent growth rate economists were expecting and marked the economys best performance since the third quarter of 2002. The rebound came after two straight quarters of anemic economic growth. GDP, which measures the value of all goods and services produced within the United States, increased at just a 1.4 percent pace in the final quarter of 2002 and the first three months of this year. In a second report, new claims for unemployment benefits rose by a seasonally adjusted 3,000 to 394,000 last week, the Labor Department said. Even with the increase, claims remained below 400,000, a level associated with a weak job market. That offered hope that the pace of layoffs is stabilizing. After-tax profits of U.S. corporations fell by 3.4 percent in the second quarter, compared with a 3.8 percent increase in the first quarter, the GDP report said. The Bush administration insists the tax cuts will help the economy grow and eventually create jobs. Democrats say the tax cuts arent putting people back to work, mainly help the wealthy and dig the federal budget hole deeper. In the second quarter, surging military spending was a major factor in the strong GDP showing. Spending by the federal government on national defense increased at a whopping 45.9 percent rate, the largest increase since the third quarter 1951. The new estimate was stronger than the 44.1 percent growth rate for such spending reported a month ago. Consumer spending grew at a 3.8 percent pace in the second quarter, up from a 3.3 percent growth rate previously estimated. Much of that pickup reflected more brisk spending on big-ticket goods, such as cars and appliances. Consumer spending on such durable goods grew at sizable 24.1 percent rate, the biggest increase since the end of 2001. Consumer spending has been the main force keeping the economy going. Thursdays report offered signs that businesses, whose reluctance to spend in previous quarters was a main factor in the economys listlessness, may be coming around. Businesses increased spending in the second quarter on equipment and software at an 8.2 percent pace, up from the 7.5 percent growth rate previously reported, and a turnaround from the cut in such spending made during the first quarter of this year. And, after six straight quarters of cutting spending on plants and other structures, businesses increased such investment in the second quarter at a 7.1 percent rate, also stronger than the 4.8 percent growth rate first estimated for the quarter. The nations trade deficit also was less of a drag on second-quarter GDP than the government previously thought. The trade deficit shaved off 1.20 percentage point from GDP, versus the 1.56 percentage point reduction first estimated. Amid signs of an economic rebound, the Federal Reserve earlier this month decided to hold a key short-term interest rate at a 45-year low of 1 percent and hinted that the rate may stay at this low level for some time. Economists are predicting that the economy will pick up speed in the second half of this year, with some estimating that growth will clock in at an annual rate of 3.5 percent or more. Near rock-bottom short-term borrowing costs along with fatter paychecks and other incentives coming from President Bushs third tax cut should motivate consumers and businesses to spend and invest more, thus boosting economic growth. Even if the economy perks up in the second half, the job market probably will remain sluggish for a while, economists say. The nations unemployment rate dipped to 6.2 percent in July, but that was mainly because a lot of people left the civilian labor force. Businesses cut jobs for the sixth month in a row. Economists say businesses will want profits to improve and want to feel secure about the economic rebound before they go on a hiring spree.