By Lucia Mutikani
WASHINGTON (Reuters) - U.S. economic growth likely accelerated in the second quarter as a pick-up in consumer spending and housing offset the drag from trade and the energy sector, suggesting a steady momentum that could bring the Federal Reserve closer to hiking interest rates this year.
The government is expected to report on Thursday that gross domestic product increased at a 2.6 percent annual rate, according to a Reuters survey of economists.
There is, however, a lot of uncertainty regarding this estimate after the government took steps to refine the seasonal adjustment for some components of GDP, which economists said left residual seasonality in the data. This means first-quarter GDP, previously reported to have shrunk at a 0.2 percent pace, could be revised higher because of new source data.
"We expect a decent bounce back, which will suggest that the economy's struggles at the start of the year were temporary," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester, Pennsylvania. "GDP growth north of 2.5 percent is sufficient to reduce the slack in the broader economy."
The Commerce Department will publish its GDP report at 8:30 a.m. (1330 BST).
The Fed on Wednesday described the economy as expanding "moderately" while upgrading its view of the labour market and saying housing had shown "additional" improvement. The Fed's assessment left the door open for a possible hike in interest rates in September, which would be the first rise since 2006.
CONSUMER BOOST
Growth in the second quarter was probably 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 labour market also likely encouraged consumers to loosen their purse strings.
Consumer spending, which accounts for more than two-thirds of U.S. economic activity, is forecast to have grown around a 2.9 percent rate from a 2.1 percent pace in the first quarter.
"The upshift in growth momentum should be sustained during the second half of the year," said Millan Mulraine, deputy chief economist at TD Securities in New York. "This will provide the necessary cover for the Fed to raise rates later this year, though the pace of tightening will be 'gradual.'"
A firming housing market is also expected to have supported the economy in the second quarter, as did government spending.
However, the energy sector probably continued to weigh on growth as it struggles with the lingering effects of deep spending by oil-field companies like Schlumberger (N:SLB) and Halliburton (N:HAL) in the aftermath of a more than 60 percent plunge in crude oil prices last year.
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.
A strong dollar likely continued to hobble exports in the second quarter, while sucking in imports to meet a pickup in domestic demand. That is expected to have resulted in a trade deficit that subtracted from GDP growth. Trade chopped off 1.89 percentage points from GDP growth in the first quarter.
Inventory accumulation is expected to have slowed after the first quarter's brisk pace. While that means inventories will subtract from second-quarter GDP growth, that will be 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 likely accelerated. The personal consumption expenditures price index is forecast to have rebounded at a 2.0 percent rate after falling by the same margin in the first quarter.
Excluding food and energy, prices likely rose at a 1.6 percent pace.