The US government has cut estimates on gross domestic product (GDP) after demand rose for foreign goods and services.

The Commerce Department said it now expects GDP in the second quarter to June to reach 3.8 per cent compared to a previous estimate of 3.9 per cent.

Despite the revision, the estimate still eclipses US first quarter figures which increased by just 0.6 per cent. The first estimate of performance in the third quarter will be released at the end of October.

The pace of GDP is expected to slow in coming quarters because credit problems, springing from the US sub-prime mortgage market, will tighten consumers’ purse strings while making businesses reluctant to spend on new equipment.

The Federal Reserve last week cut official interest rates by a half a percentage point to 4.75 per cent in an effort to forestall some of the impact of a credit squeeze.

Consumer spending, which accounts for more than two-thirds of America’s economic activity, was left unrevised at a 1.4 percent growth rate in the second quarter, slowing from 3.7 percent increase in the first quarter.

Business investment was revised down to an 11 percent annual growth rate from 11.1 percent estimated a month ago, still far ahead of the first quarter’s 2.1 percent rate of increase and the strongest since the first quarter of last year.

At the same time, the Commerce Department also said that the sales of new homes during August slumped to their lowest level in seven years, falling 8.3 per cent to 795,000.

The last time house sales fell to such a level was in June 2000 when sales reached 793,000.units.

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