While second-quarter GDP growth was a bit below economists' expectations for a 2.6 percent rate, the growth composition pointed to firming fundamentals.
A measure of private domestic demand, which excludes trade, inventories and government expenditures, increased at a 2.5 percent rate after rising at a 2.0 percent pace at the start of the year.
Growth in the second quarter was boosted by consumer spending as households used some of the windfall from cheaper gasoline in late 2014 and early this year to go shopping. The strengthening labor market also encouraged consumers to loosen their purse strings.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.9 percent rate from a downwardly revised 1.8 percent pace in the first quarter. Consumer spending was previously reported to have increased at a 2.1 percent rate at the start of the year.
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The saving rate fell to 4.8 percent from 5.2 percent.
A firming housing market also supported the economy in the second quarter, as did exports, and state and local government spending.
However, the energy sector continued to weigh on growth as it struggles with the lingering effects of deep spending cuts by oil-field companies like Schlumberger and Halliburton in the aftermath of a more than 60 percent plunge in crude oil prices last year.
Business spending on structures fell at a 1.6 percent rate after stumbling 7.4 percent at the start of the year. Equipment spending fell at a 4.1 percent rate.
Spending on mining exploration, wells and shafts plunged at a 68.2 percent rate, the largest decline since the second quarter of 1986. This category dropped at a 44.5 percent pace in the first quarter.
But there are signs that the energy spending rout might be nearing an end. Data last Friday showed U.S. energy firms added 21 oil rigs last week, marking the third increase over the past 33 weeks.
Schlumberger said last week it believed the North American rig count may be bottoming and that a slow rise in both land drilling and completion activity could occur in the second half of the year.
Exports rebounded in the second quarter, despite a strong dollar, while imports rose moderately. That left a smaller trade deficit that added 0.13 percentage point to GDP growth.
Inventory investment slowed after the first quarter's brisk pace. Businesses accumulated $110.0 billion worth of merchandise, down from $112.8 billion in the first quarter. While inventories did not add to second-quarter GDP growth, that is good news for the remainder of the year.
With oil prices having risen during the second quarter and consumer spending having picked up, inflation pressures accelerated sharply.
The personal consumption expenditures price index rebounded at a 2.2 percent rate, the fastest since the first quarter of 2012, after falling at a 1.9 percent rate at the start of the year. Excluding food and energy, prices increased at a 1.8 percent pace.