The U.S. economy expanded more than previously estimated in the second quarter on stronger consumer spending and construction, the second upward revision in a row.
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The Commerce Department said on Friday gross domestic product rose at a 3.9 percent annual pace in the April-June quarter, up from the 3.7 percent pace reported last month.
The rise, which beat expectations in a Reuters poll for the third reading of Q2 economic growth to be unchanged at 3.7 percent, was driven by growth in consumer spending, mainly on services like healthcare and transport.
Consumer spending, which accounts for more than two thirds of U.S. economic activity, was revised up to a 3.6 percent growth pace from the 3.1 percent rate reported in August, helped by cheap gasoline prices and relatively higher house prices boosting household wealth.
Revised construction spending data helped to push up the headline figure, with non-residential fixed investment expanding 4.1 percent in the quarter.
The revisions to second-quarter growth also reflected a smaller accumulation of inventories than earlier estimated, with inventories contributing just 0.02 percentage point to growth rather than adding 0.22 percentage point.
After-tax corporate profits were also stronger in the second quarter than previously thought. Profits after tax with inventory valuation and capital consumption adjustments showed a 2.6 percent rebound from a slump in late 2014 and early 2015, instead of the 1.3 percent increase reported last month.
The data supports the case that the U.S. economy may be gaining enough strength to withstand an increase in benchmark interest rates from record low levels.
The U.S. Federal Reserve last week held off on hiking rates, but Fed Chair Janet Yellen kept the door open to an increase this year in a speech on Thursday night, as long as inflation remains stable and growth is strong enough to boost employment.
(Reporting by Krista Hughes; Editing by Andrea Ricci)