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WASHINGTON, Aug 29 (Reuters) - The U.S. economy slowed a bit more than initially thought in the second quarter as the strongest growth in consumer spending in 4-1/2 years was offset by declining exports and a smaller inventory build.
Gross domestic product increased at a 2.0% annualized rate, the Commerce Department said in its second reading of second-quarter GDP on Thursday. That was revised down from the 2.1% pace estimated last month. The economy grew at a 3.1% rate in the January-March quarter. It expanded 2.6% in the first half of the year.
The downward revision was in line with ecconomists' expectations.
The economic expansion, now in its 11th year, is under threat from the Trump administration's year-long trade war with China, which has undercut business investment and manufacturing.
The deterioration in trade relations between the two economic giants has roiled global stock markets and triggered an inversion of the U.S. Treasury yield curve, fanning fears of a recession. While manufacturing and housing data suggest the economy continued to slow early in the third quarter, strong consumer spending, backed by the lowest unemployment rate in nearly 50 years, has tempered some concerns about a downturn.
Federal Reserve Chair Jerome Powell told a conference of central bankers last week that the economy was in a "favorable place," but reiterated that the U.S. central bank would "act as appropriate" to keep the economic expansion on track.
The Fed lowered its short-term interest rate by 25 basis points last month for the first time since 2008, citing trade tensions and slowing global growth. Financial markets have fully priced in another quarter-percentage-point cut at the Fed's Sept. 17-18 policy meeting.
The economy is also losing speed as the stimulus from the White House's $1.5 trillion tax-cut package and a government spending blitz fades. Economists are forecasting growth this year around 2.5%, below the Trump adminstration's 3% target.
When measured from the income side, the economy grew at a 2.1% rate in the second quarter. Gross domestic income (GDI) increased at a 3.2% pace in the January-March quarter.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, rose at a 2.1% rate last quarter, slowing from a 3.2% pace of growth in the first three months of the year.
The income side of the growth ledger was supported by a rebound in profits after two straight quarterly declines. After-tax profits without inventory valuation and capital consumption adjustment, which correspond to S&P 500 profits, increased at a 4.8% rate after dropping 1.5% in the first quarter.
Growth in consumer spending, which accounts for more than two-thirds of U.S. economic activity, surged at a 4.7% rate in the second quarter. That was the fastest since the fourth quarter of 2014 and was a slight upward revision from the 4.3% pace estimated last month.
The GDP report showed the trade deficit widened to $982.5 billion in the second quarter, instead of $978.7 billion as reported last month. Trade cut 0.72 percentage point from GDP growth last quarter instead of 0.65 percentage point as previously reported.
U.S.-China trade tensions have caused wild swings in the trade deficit, with exporters and importers trying to stay ahead of the tariff fight.
Growth in inventories was revised down to a $69.0 billion rate in the second quarter from the previously estimated $71.7 billion pace. Inventories chopped 0.91 percentage point from GDP growth last quarter, instead of 0.86 percentage point as reported in July.
The slowdown in inventory accumulation reflects robust consumer spending and an uncertain economic outlook.
Business investment declined at an unrevised 0.6% rate in the second quarter, the first contraction since the first quarter of 2016. Growth in government investment was revised down. Spending on homebuilding contracted for a sixth straight quarter, the longest such stretch since the Great Recession. (Reporting by Lucia Mutikani Editing by Paul Simao)