GOP blocks tax hike on firms moving overseas

WASHINGTON — Republican senators blocked an election-year bill Wednesday to limit tax breaks for U.S. companies that move operations overseas.

The bill would have prohibited companies from deducting expenses related to moving their operations to a foreign country. It also would have offered tax credits to companies that move operations to the U.S. from a foreign country.

The Senate voted 54-42 to end debate on the bill, six short of the 60 votes needed to advance it. The White House says President Barack Obama supports the legislation.

"Today in the United States, any time an American company closes a factory or plant in America and moves operations to another country, the American taxpayers pick up part of that moving bill," said Senate Majority Leader Harry Reid, D-Nev. "Frankly, a vote against this bill is a vote against American jobs."

Republicans called the bill an election-year stunt. They noted that Democrats tried to pass a similar bill two years ago, right before the last congressional elections.

Senate Republican Leader Mitch McConnell of Kentucky said the bill is "designed for campaign rhetoric and failure, not to create jobs here in the U.S."

Republicans also complained that Reid wouldn't allow any amendments. The legislation now joins a growing number of bills that have stalled in the Senate this year because Democrats and Republicans couldn't agree on amendments.

The bill would have cost U.S. companies that move overseas $143 million in additional taxes over the next decade, according to the Joint Committee on Taxation, which analyzes tax legislation for Congress. Companies moving into the U.S. would have seen their tax bills drop by $357 million over the same period.

The difference — $214 million — would have been added to the budget deficit.

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Follow Stephen Ohlemacher on Twitter: http://twitter.com/stephenatap

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An early rally fades on the US stock market

NEW YORK — U.S. stocks turned lower in midday trading, erasing an early gain. Trading was quiet as investors waited for a statement from the Federal Reserve later Wednesday.

KEEPING SCORE: The Dow Jones industrial average fell 70 points, or 0.4 percent, to 16,842 as of 12:14 a.m. The Standard & Poor's 500 index sank two points, or 0.1 percent, to 1,967. The Nasdaq composite rose 12 points, or 0.3 percent, to 4,455.

EARNINGS PARADE: Wall Street is in the middle of second-quarter earnings season, when big companies turn in their springtime results and tell investors how they think the rest of the year will shape up. Genworth Financial sank $2.09, or 13 percent, to $14.17 and Goodyear Tire & Rubber fell $1.94, or 7 percent, to $25.63 after turning in results that disappointed investors.

NOT BAD OVERALL: So far, the news has been much better than many expected. More than half of the companies in the S&P 500 have turned in results, and roughly seven out of 10 have reported higher profits than analysts projected, according to S&P Capital IQ.

THE ECONOMY: The Commerce Department said the economy grew at a 4 percent clip in the three months ending in June, helped by spending from businesses and even state and local governments.

WHERE'S THE PARTY: A strong report on the economy is always good news for the stock market over the long haul, said Darrell Cronk, Deputy Chief Investment Officer for Wells Fargo Wealth Management. In the near term, though, investors weigh any good news against an interest-rate move from the Federal Reserve, which ends a two-day policy meeting this afternoon. Fed officials are winding down their support for the economy and could start raising interest rates next year.

"I'd love to get back to where what matters most for the market is the economy not what the latest read is on the Fed," Cronk said.

TWEET: Stronger revenue from Twitter sent the company's stock up 21 percent in early trading. The social-networking company reported a quarterly loss late Tuesday but its revenue more than doubled over the year, thanks to new advertising tools and a surge in traffic from soccer fans following the World Cup. Twitter's stock surged $8.35 to $46.93.

LAYOFFS AND PROFITS: Amgen said Tuesday that it plans to lay off up to 15 percent of its worldwide workforce and close four sites, even as it reported second-quarter results that trounced Wall Street expectations. The drugmaker also raised its forecasts for its 2014 profit and sales. Amgen's stock climbed $6.22, or 5 percent, to $129.52.

BUSY WEEK: It's a busy week for economic news. Besides the Federal Reserve meeting, there's a report on China's manufacturing industry out Thursday, and the U.S. Labor Department releases its monthly jobs report on Friday.

EUROPE: Major markets in Europe drifted lower. Germany's DAX sank 0.6 percent and France's CAC 40 dropped 1.2 percent. Britain's FTSE 100 lost 0.5 percent.

OTHER MARKETS: News of stronger U.S. economic growth sent prices for U.S. government bonds lower. The yield on the 10-year Treasury note jumped to 2.54 percent from 2.46 percent late Tuesday, a big move in the usually placid bond market. Benchmark U.S. crude for September delivery rose 49 cents to $101.53 a barrel.

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AP Business Writers Yuri Kageyama contributed from Tokyo and Steve Rothwell contributed from New York.

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Hyundai recalls 883K Sonatas to fix gear shifters

DETROIT — Hyundai is recalling its popular Sonata midsize sedan to fix problems with the gear shift levers.

The recall covers 883,000 cars from the 2011 through 2014 model years.

The Korean automaker says the automatic transmission shift cable can separate from the shift lever. If that happens, the lever may not show the correct gear, increasing the risk of a crash.

Also, if the driver stops the car and puts the transmission in "park," the car may still be in gear and could roll away, injuring drivers, passengers or bystanders, Hyundai said in documents posted Wednesday by the U.S. National Highway Traffic Safety Administration. Other symptoms include an inability to start the car because it can't be shifted into park.

Hyundai has received 1,171 warranty claims about the problem, plus seven other reports with related symptoms. Hyundai says there have been no crashes or injuries caused by the problem. The Sonatas being recalled were made from Dec. 11, 2009 through May 29, 2014.

The Sonata is Hyundai's second-best-selling car in the U.S. so far this year. First is the compact Elantra.

Hyundai will notify owners by letter between now and the end of September. Dealers will inspect the shift cables and repair the connection if needed.

Owners with questions can call Hyundai customer service at (800) 633-5151.

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As Fed meets, key issues likely to stay unanswered

WASHINGTON — The Federal Reserve will likely end a policy meeting Wednesday with a lot of questions unanswered:

When will it start tightening its benchmark short-term interest rate to make sure future inflation remains under control? How will it do so? And when will the Fed start reducing its enormous investment holdings — a move that will put upward pressure on interest rates?

Chair Janet Yellen gave few hints about the answers to such issues when she testified to Congress this month. And most analysts don't think the central bank will fill in any of the blanks when it ends a two-day meeting with a brief policy statement. There will be no Yellen news conference this time.

One announcement that is expected is that the Fed will make a sixth $10 billion cut in its monthly bond purchases, which have been aimed at keeping long-term rates low.

A key reason is that the economy needs less help now. Hiring is solid, and, at 6.1 percent, the unemployment rate is on the cusp of a historically normal range. Manufacturing is strengthening. Consumers are voicing renewed confidence.

Still, the economy isn't back to full health.

Workers' pay remains flat. Turmoil overseas, from Ukraine to the Middle East, poses a potential threat. And as Yellen noted in her congressional appearance, long-term unemployment remains high and wage growth weak.

For that reason, the Fed is expected to reaffirm its plan to leave its key short-term rate at a record low near zero "for a considerable time" after it ends its bond purchases.

"There are so many uncertainties, both economic and political, that the Fed wants to leave plenty of wiggle room," said Sung Won Sohn, an economics professor at California State University, Channel Islands.

The Fed will almost surely announce that it's reducing its monthly bond purchases from $35 billion to $25 billion. When the Fed started cutting the purchases in December, they stood at $85 billion a month.

The Fed intends to end its new purchases by October. By then, its investment portfolio will be nearing $4.5 trillion — five times its size before the financial crisis erupted in September 2008.

After the crisis struck, the Fed embarked on bond purchases to try to drive down long-term rates and help the economy recover from the Great Recession. Even after its new bond purchases end, the Fed has said it will maintain its existing holdings, which means it will continue to put downward pressure on rates.

The Fed has kept its target for short-term rates near zero since December 2008. Most economists think it will start raising rates by mid-2015, though some caution that the Fed could do so sooner if the economy keeps generating jobs at a robust pace. There have been five straight months of 200,000-plus job growth.

Mark Zandi, chief economist at Moody's Analytics, said he thinks chronically lagging pay growth, in particular, will stop the Fed from raising rates before mid-2015.

Besides discussing short-term rates, Fed officials this week are likely debating how to unwind their investment holdings. They face a delicate task in shrinking the portfolio to more normal levels without destabilizing markets. The Fed's bond purchases allowed it to inject money into the financial system, which wound up as reserves held by banks and helped keep loan rates low.

To reverse that process and raise borrowing rates, the Fed is considering a variety of tools. One would be to increase the interest it pays banks on excess reserves they keep at the Fed.

David Jones, author of a new book on the central bank's 100 year history, said any new exit details might not be revealed until the Fed releases the minutes of this week's meeting in three weeks. Those minutes, Jones said, "may be the most interesting thing to come out of the meeting."

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Passenger dies on US Airways flight to Phoenix

PHOENIX — Authorities in Phoenix say a passenger has died on a US Airways flight to Phoenix from Honolulu after a suffering an unknown medical emergency.

Fire Capt. Benjamin Santillan (san-tee-YAHN') says the passenger was a woman in her 50s.

Santillan says the woman lost consciousness while the plane was in the air. He says she had no pulse and was pronounced dead by responders after the plane arrived at Sky Harbor International Airport in Phoenix.

Sky Harbor spokeswoman Julie Rodriguez says the flight was US Airways 693. It left Honolulu on Tuesday night and arrived in Phoenix shortly after 7 a.m. Wednesday.

Matt Miller, a spokesman for US Airways' merger partner American Airlines, says the passenger's medical emergency occurred as the plane was descending into Phoenix.

The cause of death has not been released.

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Sanctions will damage Russia if not lifted quickly

MOSCOW — U.S. and European sanctions against Russia's energy and finance sectors are strong enough to cause deep, long-lasting damage within months unless Moscow persuades the West to repeal them by withdrawing support for Ukrainian insurgents.

The U.S. and European Union released details Wednesday of new sanctions aimed at hurting Russia's economy without doing undue damage to their own trade interests, punishment for alleged Russian support for Ukrainian rebels and Russia's annexation of the Ukrainian peninsula of Crimea.

The sanctions go further than earlier penalties — which had largely targeted individuals — by broadly limiting the trade of weapons and of technology that can be used in the oil and military industries. The EU also put its capital markets off-limits to Russian state-owned banks.

Experts said the sanctions wouldn't have a tremendous impact in the short term, but if left in place for months will stifle development in the Russian economy and sap its financial sector. Already, economists have revised downward their predictions for Russian growth this year, with some saying the country will go into recession.

The biggest immediate impact is likely to come from the financial sanctions. U.S. officials said roughly 30 percent of Russia's banking sector assets would now be constrained by sanctions.

In a first sign of concern, Russia's central bank said Wednesday that it would support banks targeted by the penalties.

"State-owned banks are the core of the Russian banking system," said Vladimir Tikhomirov, chief economist at financial services group BCS. He noted the banks are already having trouble raising money. "That would mean their ability to lend to other banks, smaller banks, is going to be more restricted also."

Last year, about a third of the bonds issued by Russia's majority state-owned banks — 7.5 billion euros ($10 billion) — were placed in EU financial markets, according to EU officials.

The measures against Russian banks, which exempt short-term borrowing, are meant to inflict just enough pain without causing them to collapse.

"The aim is not to destroy these banks," said a senior EU official, briefing reporters on condition of anonymity prior to the sanctions' official announcement. "We do not want them to get into a liquidity crisis."

Russia's foreign ministry complained vocally about the sanctions, criticizing the U.S. for "advancing baseless claims" about its role in Ukraine in a "pretentious, prosecutorial manner." It criticized the EU for allowing its policy to be "dictated by Washington."

The key will be how long the sanctions stay in place.

In the short term, Russia has low public debt and enough money to support its banks. The lenders themselves have large reserves.

In the longer term, the sanctions could hurt by fostering a climate of uncertainty — something investors loathe. Some foreign investors are likely to stay away from the sanctioned companies.

Already, as the Ukraine crisis deepened, Russia's central bank has been forced to raise interest rates several times to stabilize the currency as foreign investors sold it off; investors are expected to pull more than $100 billion out of Russia this year. The central bank last raised rates on Friday in anticipation of the latest sanctions.

Rising rates hurt the economy by making borrowing more expensive; VTB bank chairman Mikhail Zadornov told the Financial Times that the company's retail arm cut new loans to small business by 20 percent in the first half of 2014.

Even ordinary Russians were worried.

"I have some concerns for my own savings," said Indira Minigazimova, a resident of southern Siberia who was visiting Moscow.

It is less clear what the impact may be of another key sanction: the EU's block on exports of technology that can be used for oil exploration and economic development. Russia relies heavily on Western expertise, for example in drilling for oil in Arctic regions.

This area has significantly more risk to Western companies — particularly BP and ExxonMobil — that have big investments in Russia. The sanctions were not expected to affect current deals and shareholdings, though it was unclear what the long-term repercussions for investments might be.

EU officials noted the prohibition would target just one-tenth of overall energy tech exports to Russia.

The reaction in Moscow's stock markets was mixed Wednesday, as investors had sold off shares in Russian companies for the past two weeks, since the downing of Malaysia Airlines Flight 17 over eastern Ukraine. Reports last week that the new, tougher sanctions were due had also caused markets to tumble ahead of their formal announcement Tuesday.

On Wednesday, the MICEX benchmark index rose 0.9 percent, mainly thanks to a rise in the shares of companies that were spared sanctions. Shares in VTB Bank, Russia's second-largest and one of the sanctions targets, were down 1.3 percent.

EU officials emphasized that while the latest measures last for one year, they can be annulled at any time — intended as an incentive for Russia to dial back its support for the Ukrainian rebels.

So far, the sanctions have had little effect on Russia's actions in Ukraine. If anything, Russia appears to have stepped up its engagement in the conflict in recent weeks, with the U.S. and its allies saying Russia has built up troops along its border with Ukraine and sent heavy weapons to the separatists.

Russia, meanwhile, slapped a ban Wednesday on fruit and vegetable imports from Poland, a vocal supporter of tougher EU penalties. Moscow said the ban was for violations of health regulations and documentation procedures for some Polish produce; Poland accused Moscow of retaliation.

An Associated Press-GfK poll conducted just before the latest expansion of sanctions found 53 percent of Americans felt the U.S. had not gone far enough in sanctioning Russia, up from 41 percent who felt that way in March. A majority also supported expanding sanctions to target the Russian economy, including its energy sector, according to the survey of 1,044 Americans. The expanded sanctions drew rare cross-party support among the American public, with majorities of both Democrats and Republicans backing the move.

Indeed, President Barack Obama announced more sanctions Tuesday against three major Russian banks, and said he would block future technology sales to the oil industry.

Fewer of those polled felt the U.S. ought to provide military or financial support to countries if they are targeted by Russia.

Despite the sanctions, Obama said the West is not entering a Soviet-era standoff with Russia.

"It's not a new Cold War," he said.

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AP-GfK poll: http://www.ap-gfkpoll.com

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Baetz reported from Brussels. Julie Pace in Washington, Geir Moulson in Berlin, Danica Kirka in London and Vladimir Isachenkov in Moscow contributed to this report.

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Survey: US companies add 218,000 jobs in July

WASHINGTON — A private survey shows that businesses hired at a healthy pace in July, though the job gains slowed from the previous month.

Private employers added 218,000 jobs, down from 281,000 in June, payroll provider ADP said Wednesday. It was the fourth straight month of job gains above 200,000, a healthy pace that usually is enough to lower the unemployment rate.

The figures suggest that the government's jobs report, to be released Friday, will also show a solid increase. But the ADP numbers cover only private businesses and often diverge from the government's more comprehensive report.

Economists forecast that the government's report will show that 225,000 jobs were added in July, while the unemployment rate stayed at 6.1 percent, according to a survey by FactSet.

"It feels to me like the job market is humming," said Mark Zandi, chief economist at Moody's Analytics, which helps compile the report.

The job gains were mostly broad-based. Construction added 12,000 positions, most of which likely pay mid-level wages. Retail, shipping and utilities gained 52,000 and professional and business services, which mostly include higher-paying jobs, gained 61,000.

Manufacturing, however, added just 3,000 jobs, according to ADP.

A separate government report Wednesday showed the economy grew at a rapid 4 percent annual pace in the April-June quarter. That followed a sharp 2.1 percent contraction in the first three months of the year. But the second half of 2013 was also revised higher to show growth at a 4 percent annual pace.

The better growth figures should support continued strong hiring, Zandi said.

"This feels a lot more consistent with the jobs numbers and more supportive of the idea that the economy is gaining traction," he said.

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Warner Bros. conjures up Harry Potter global franchise development team

LONDON -- Warner Bros. Entertainment has conjured up the Harry Potter Global Franchise Development team, based in both London and Burbank, to "develop and execute a high-level strategic vision for the Harry Potter brand and its ancillary businesses," Warner Bros. said Wednesday.

The move follows last year's announcement that the studio had formed an expanded creative partnership with J.K. Rowling. It is a response to the continuing expansion of the Harry Potter franchise.

This includes, among other projects: a new film series in "Fantastic Beasts and Where to Find Them"; the Warner Bros. Studio Tour London -- The Making of Harry Potter; the recent opening of The Wizarding World of Harry Potter at Universal Studios Japan; the expansion of The Wizarding World of Harry Potter at Universal Studios Florida; a suite of Harry Potter digital services, and products including J.K. Rowling's own initiative, "Pottermore"; and a future Harry Potter stage play, which will open in London's West End next year.

The team, which will work closely with Rowling's people at The Blair Partnership, will be led by Josh Berger, president and managing director, Warner Bros. U.K., Ireland and Spain, who now adds president of HPGFD to his role. He will be supported by Polly Cochrane, based in London, and Paul Condolora, based in Burbank, who joins the company this week.

Berger commented, "With Harry Potter's consumer touch-points continuing to grow and flourish, I am confident that this talented, cross-company global team will enable us to take full advantage of the many opportunities ahead -- helping to bring Harry Potter in all its future incarnations to fans all over the world."

Cochrane, who is senior VP and group marketing director, Warner Bros. U.K. and Ireland, will add the new responsibility of senior VP and chief marketing officer, HPGFD to her existing remit. She will focus on "the optimization of the Harry Potter franchise globally through a cross-divisional marketing lens, upholding the brand's premium values."

In her six years with Warner Bros., Cochrane has overseen the development of an integrated marketing function within Warner Bros. U.K., spanning films, TV shows, video games and licensed products, delivering lifecycle marketing campaigns for the company's properties.

Condolora takes up the newly created role of senior VP, HPGFD and Harry Potter Digital in Burbank, and will lead the business development around Harry Potter, with a focus on digital opportunities "to serve and engage fans around the world."

He joins from Turner Broadcasting System, where he was most recently senior VP, strategic development and business operations in its animation, young adults and kids media division, responsible for the business growth of three networks: Adult Swim, Boomerang and Cartoon Network.

Also moving over to the team will be London-based Suzie Boavida, who takes up the role of business development director, HPGFD. Boavida will work with Condolora on business development, particularly in the areas of new markets and revenue streams, in close collaboration with the rest of the HPGFD team -- Burbank-based Xochitl Ruiz, Moira Squier, Angela Kato-Alvarez, Christine Kittelsen, Cynthia Gonzalez and Rebecca Muh, and Fiona Hickley in London.

(C) 2014 Variety Media, LLC, a subsidiary of Penske Business Media; Distributed by Tribune Content Agency, LLC

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Revised data: US grew faster in 2nd half of 2013

WASHINGTON — Fueled by healthier consumer spending, the U.S. economy grew in the second half of last year at the strongest pace in a decade and more than previously estimated, new government data show.

Revised data released Wednesday also suggest a possible factor behind the pickup: Americans saved much more in 2012 than previously thought, leaving more to spend in 2013.

The economy grew at an annual rate of 4.5 percent in last year's third quarter, up from a previous estimate of 4.1 percent. Growth was 3.5 percent in the fourth quarter, up from 2.6 percent. The average 4 percent annual pace was the best six-month showing since 2003.

For 2013 as a whole, the economy expanded 2.2 percent, up from the previous estimate of 1.9 percent.

The government's newly revised figures show that growth was accelerating before harsh weather in the first quarter contributed to a sharp contraction. And growth rebounded to a robust 4 percent annual rate in the April-June quarter, the government said Wednesday. The figures indicate that the 2.1 percent contraction in the first quarter was an aberration. That number was revised higher from a previous reading of a 2.9 percent contraction.

The better growth readings also suggest that this year's healthy hiring trend will continue. Previously, the job gains in the first six months of this year were much stronger than the economic growth figures. Now they are more closely aligned.

Still, growth was weaker in 2011 and 2012 than the government had previously estimated, the revisions show. Overall, the growth trend since the Great Recession was little changed by the government's updates. The new figures show that growth has averaged 2.3 percent at an annual rate from the end of the recession in June 2009 through last year. That's a scant downgrade from the previous estimate of 2.4 percent.

The economy expanded just 2.3 percent in 2012, down from a previous estimate of 2.8 percent. And growth in 2011 was marked down to 1.6 percent from 1.8 percent.

The changes stem from a comprehensive revision the government conducts each year to the nation's gross domestic product data. GDP, the broadest measure of the economy's output of goods and services, includes everything from restaurant meals to television production to steel manufacturing. Most of the changes were made to the previous three years' figures.

The revisions are based on updated data from agencies such as the Census Bureau and the Internal Revenue Service. Many monthly surveys of consumer spending, manufacturing and retail businesses are updated with more comprehensive annual reports.

Newly available tax data showed that Americans earned more than was previously thought in 2012. Personal income, after taxes and adjusted for inflation, grew 3 percent that year, much higher than the previous estimate of 2 percent.

But the bulk of that gain likely went to wealthier Americans. Most of the upward revision resulted from a sharp increase in interest and dividend payments. Business income was also revised higher. Wealthier Americans own the vast majority of stocks and other financial assets.

The higher interest and dividend payments probably included many one-time payments that were made ahead of tax increases that kicked in at the beginning of 2013.

With income much higher, so was savings. The saving rate was revised to 7.2 percent in 2012, up from the previous estimate of 5.6 percent. Americans also saved more in 2011 and 2013. Though more savings can slow growth in the short run, it can lay a foundation for faster growth in the future.

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A more vigorous US economy appears to be emerging

WASHINGTON — The U.S. economy has rebounded with vigor from a grim start to 2014 and should show renewed strength into next year.

That was the general view of analysts Wednesday after the government estimated that the economy grew at a fast 4 percent annual rate in the April-June quarter. Consumers, businesses and governments joined to fuel the second-quarter expansion. The government also said growth was more robust last year than it had previously estimated.

Whether the healthier expansion will lead the Federal Reserve to raise interest rates sooner than expected is unclear. The Fed will issue a statement later Wednesday after ending a policy meeting.

The economy sprang back to life after a dismal winter in which it shrank at a sharp 2.1 percent annual rate. The government upgraded that figure from a previous estimate of a 2.9 percent drop. But it was still the biggest contraction since early 2009 in the depths of the Great Recession.

Last quarter's bounce-back reinforced analysts' view that the economy's momentum is extending into the second half of the year, when they forecast annual growth of around 3 percent.

The government also updated its estimates of growth leading into this year. They show the economy expanded in the second half of 2013 at the fastest pace in a decade and more than previously estimated. The revised data also show that the economy grew faster in 2013 than previously estimated, though more slowly in 2011 and 2012 than earlier thought.

The second quarter's growth in the gross domestic product — the total output of goods and services — was the fastest since a 4.5 percent increase in July-September quarter of 2013.

At the same time, a higher trade deficit slowed growth as imports outpaced an increase in exports.

Paul Ashworth, chief U.S. economist at Capital Economics, said that given last quarter's rebound, he's boosting his estimate for growth this year to 2 percent, up from a previous 1.7 percent forecast. Ashworth said the economy's growth also supported his view that the Fed will be inclined to start raising rates early next year.

Most economists have been predicting that the Fed would wait until mid-2015 to start raising rates.

"This GDP report supports our view that an improving economy will persuade the Fed to begin raising rates in March next year," Ashcroft wrote in a research note.

Ashcroft is among a group of economists who think growing strength in the job market and the economy will prod the Fed to move faster to raise rates to make sure inflation doesn't get out of hand.

Stock prices turned generally negative in the wake of the GDP report because some investors saw a greater likelihood that the Fed would raise rates sooner than expected.

"We're at the point where we're not sure if good news is good news or bad news," said Jim Paulsen, chief investment strategist at Wells Capital Management.

The GDP report showed that one measure of inflation rose 2 percent last quarter, up from a 1.3 percent rise in the first quarter. The Fed's inflation target is 2 percent, and for two years the GDP measure of inflation has been running below that level. Low inflation has given the Fed leeway to focus on boosting growth to fight high unemployment.

The economy's sudden contraction in the first quarter had resulted from several factors. A severe winter disrupted activity across industries and kept consumers away from shopping malls and auto dealerships. Consumer spending slowed to an annual growth rate of 1.2 percent, the weakest in nearly three years.

Last quarter, consumer spending accelerated to a growth rate of 2.5 percent. Spending on durable goods such as autos surged at a 14 percent annual rate, the biggest quarterly gain since 2009. Analysts said that was an encouraging sign of consumers' growing willingness to buy high-cost items like cars.

"Better job growth, a rising stock market, falling gasoline prices — all those things are starting to resonate on Main Street," said Stuart Hoffman, chief economist at PNC Financial Services Group.

Hoffman suggested that five straight months of job gains above 200,000 were buoying both consumer and business confidence. He predicted that the July jobs report, to be released Friday, would show job growth of around 225,000.

"I think the economy has finally moved from the slow lane to the passing lane," Hoffman said. He predicted growth of around 3 percent over the next year.

Still, he said he didn't think the faster growth would lead the Fed to accelerate its first rate increase. Even with higher prices last quarter, inflation remains within the Fed's 2 percent target.

Sung Won Sohn, an economics professor at California State University, Channel Islands, cautioned that risks remained, especially involving housing.

In the April-June quarter, business investment in equipment jumped at a 7 percent rate after having fallen in the first quarter. Businesses also increased their stockpiling. The increase in inventories contributed two-fifths of the growth in the quarter.

Housing, which had been falling for two straight quarters, rebounded in the spring, growing at a 7.5 percent annual rate.

Government spending also recovered after two consecutive declines. The strength came from state and local governments, which offset the seventh quarterly decline in federal government spending.

The government's revised estimates going back to 2011 show the economy expanded at an annual rate of 4.5 percent in last year's third quarter, up from a previous 4.1 percent estimate. The growth rate was 3.5 percent in the fourth quarter, up from an earlier 2.6 percent estimate.

For 2013 as a whole, the government said the economy grew 2.2 percent, up from its earlier 1.9 percent estimate. But growth was weaker in 2011 and 2012 than previously estimated. It grew 2.3 percent in 2012, down from 2.8 percent. And growth in 2011 was downgraded to 1.6 percent from 1.8 percent.

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AP Business Writer Matthew Craft in New York contributed to this report.

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