WASHINGTON, Sept 27: The US economy carried strong momentum into the mid-year credit storm, expanding at a 3.8 per cent pace in the second quarter even as housing remained weak, a revised estimate showed on Thursday.

The final reading for gross domestic product (GDP) was reduced from last month’s estimate of 4.0 per cent, the Commerce Department said, but still appeared robust after the sluggish 0.6 per cent pace of the first quarter.

The figure was roughly in line with Wall Street estimates of a 3.9 per cent annualised growth rate. Yet analysts see the report as “old” data that have minimal significance in view of the housing market and credit troubles that have emerged in the past few months.

More recent data highlight the woes facing the world’s biggest economy. A separate report on Thursday showed sales of new US homes slid 8.3 per cent in August to their lowest level in seven years, with prices falling to 2005 levels.

The home sales report “provides further evidence that the housing market continues to struggle,” said Paul Ferley, economist at RBC Financial Group.

“The weakness in housing could spread to consumer spending via faltering household net worth.”

The Federal Reserve last week cut key interest rates by half a percentage point, saying the downside risks to the economy have increased.

Brian Bethune, economist at the research firm Global Insight, said the GDP report indicates that “economic fundamentals outside the housing sector are impressive as corporate profits have accelerated and business investment is revised up.”

But Bethune sees further soft conditions going forward.

“All told, we are looking at real growth of perhaps 2.5 to 3.0 per cent in the third quarter, but that will be led by an unsustainable bounce in real consumer spending,” he said, with growth slowing to below two per cent in the fourth quarter.

“Consumer confidence appears now to be buckling under the weight of much slower employment growth and further downward pressure on the housing market -- this is expected to take a bite out of consumer spending in the fourth quarter,” he added.The latest report showed GDP growth accelerated from a weak 0.6 per cent pace in the first quarter, but analysts say both figures are statistical flukes and that the underlying pace of growth is somewhere between the two.

“Today’s revisions don’t change our view for (full-year) 2007 GDP growth close to 1.9 per cent with a significant deceleration in the second part of the year,” said Nathalie Dezeure at Natixis.The Commerce Department said the downward revision to growth reflected an increase in imports of both goods and services, which subtract from GDP growth.

Imports fell a revised 2.7 per cent in the quarter, not as steep a decline as the 3.2 per cent decline estimated earlier. Exports rose 7.5 per cent in the second quarter.

Meanwhile, the Federal Reserve’s preferred measure of inflation was revised slightly higher for the quarter. The core personal consumption expenditures (PCE) price index, which excludes volatile food and energy prices, rose by 1.4 per cent in the quarter, a tick higher than the 1.3 per cent gain estimated a month ago.

The overall PCE price index rose 4.3 per cent in the quarter, revised from the 4.2 per cent gain in the earlier estimate.

Consumer spending, which accounts for as much as two-thirds of the economy, rose an unrevised 1.4 per cent in the second quarter, slower than the 3.7 per cent increase in the first three months of the year.

Housing was the main drag on growth. Spending on residential investment declined 11.8 per cent in the second quarter, after plunging 16.3 per cent in the first quarter.

The second-quarter GDP, or total output of goods and services, represents on an annual basis an economy of $13.768 trillion, up 6.6 per cent before adjustment for inflation.—AFP