US economic growth remains robust

Carmakers managed to clear large amounts of unsold vehicles

The US economy has racked up another quarter of robust growth, despite fears rising fuel costs may limit expansion.

Gross domestic product (GDP) grew at an annual rate of 3.4% in the three months to June, the Commerce Department said.

Despite slowing from 3.8% between January and March, it was the ninth consecutive quarter of growth above 3%.

Experts said growth had slowed as firms managed to sell off stocks of unsold goods - which also hints that there is room for further expansion.

"GDP is a little stronger than I thought it was going to be, there was an inventory drawdown which took away some growth," Robert MacIntosh, chief economist at Boston's Easton Vance Management said.

"If anything it will give the Fed more reason to continue raising rates," he added.

Stockpiles reduced

Analysts said the main reason why growth slowed in the second quarter compared with the first was that US businesses were working off excess supplies of goods.

That actually wiped 2.3% from GDP. In the first quarter, businesses had been bulking up their inventories.

Companies cleared stockpiles at an annual rate of $6.4bn during the second quarter, after boosting inventories by $58.2bn in the first three months of 2005.

Consumer spending, the driving force behind the US economy, was up 3.3% in the three months, compared with 3.5% in the previous quarter.

Spending on durable goods such as cars and refrigerators jumped 8.3%.

Carmaker General Motors revealed that its discount strategy of "employee discounts for all" had helped clear its car yards - boosting its sales by 41% after months of falls.

Rates pressure

Consumer inflation spiked higher as oil prices hit new highs in the second quarter.

Personal consumption expenditure ticked up 3.3% - after a 2.3% increase in the previous quarter - the strongest rate of price rises in a year.

However, once the effect of volatile food and energy prices was stripped out the inflation measure slipped to 1.8% - lower than the 2.4% recorded in the previous quarter.

The Federal Reserve is widely expected to raise interest rates by 0.25% to 3.5% - its tenth monthly increase in a row when it next meets month in an effort to keep a lid on inflationary pressures while maintaining growth.