The U.S. economy great at an annual rate of 2.9% in the second quarter of 2006 according to preliminary estimates released by the Bureau of Economic Analysis, better than advance estimates issued last month that real GDP growth for the quarter was 2.5%.

Nevertheless, even though it improved over the estimates, growth fell behind that of the first quarter in which real GDP increased at a rate of 5.6%.

The increase from the original estimates in real GDP in the second quarter primarily reflected positive contributions from personal consumption expenditures for services, private inventory investment, nonresidential structures, exports, and state and local government spending that were partly offset by negative contributions from residential fixed investment and federal government spending. Imports, which are a subtraction in the calculation of GDP, increased.

The deceleration in real GDP growth in the second quarter primarily reflected a deceleration in PCE for durable goods, downturns in equipment and software and in federal government spending, decelerations in exports and in PCE for nondurable goods, and a larger decrease in residential fixed investment that were partly offset by a deceleration in imports, an acceleration in PCE for services, and an upturn in private inventory investment.

Final sales of computers contributed 0.05% to the second-quarter growth in real GDP after contributing 0.07% point to the first-quarter growth. Motor vehicle output subtracted 0.28% from the second-quarter growth in real GDP after contributing 0.12% to the first-quarter growth.

In addition to the GDP news, the Bureau of Economic Analysis also reported that the price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 4.0% in the second quarter, the same as in the advance estimate; this index increased 2.7% in the first quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 2.9% in the second quarter, compared with an increase of 3.0% in the
first.

Real personal consumption expenditures increased 2.6% in the second quarter, compared with an increase of 4.8% in the first. Real nonresidential fixed investment increased 4.7%, compared with an increase of 13.7%. Nonresidential structures increased 22.2%, compared with an increase of 8.7%. Equipment and software decreased 1.6%, in contrast to an increase of 15.6%. Real residential fixed investment decreased 9.8%, compared with a
decrease of 0.3%.

Real exports of goods and services increased 5.1% in the second quarter, compared with an increase of 14.0% in the first. Real imports of goods and services increased 0.6%, compared with an increase of 9.1%.

Real federal government consumption expenditures and gross investment decreased 4.3% in the second quarter, in contrast to an increase of 8.8% in the first. National defense decreased 1.8 percent, in contrast to an increase of 8.9%. Nondefense decreased 9.3%, in contrast to an increase of 8.5%. Real state and local government consumption expenditures and gross investment increased 4.2%, compared with an increase of 2.7%.

The real change in private inventories added 0.63% to the second-quarter change in real GDP, after subtracting 0.03% from the first-quarter change. Private businesses increased inventories US$58.7 billion in the second quarter, following increases of US$41.2 billion in the first quarter and US$43.5 billion in the fourth.

Real final sales of domestic product — GDP less change in private inventories — increased 2.3% in the second quarter, compared with an increase of 5.6% in the first.