The U.S. economy grew at a solid 3.4 percent annualized rate in the second quarter, the Commerce Department said yesterday in a report that suggests output and job creation will speed up as businesses replenish depleted inventories of goods.

The government's initial estimate of growth in the gross domestic product met economists' expectations, but fell short of the first quarter's 3.8 percent pace and the revised 4.2 percent growth posted for all of last year.

But it was the ninth consecutive quarter that the economy exceeded its long-term growth rate of about 3 percent. And while the nation can't match China's gazelle-like 9.5 percent clip, it's outperforming most other industrialized nations while topping average growth during the booming 1990s.

And analysts said the economy was actually stronger than it appears, as a sharp drawdown of inventories during the quarter depressed the headline growth number.

"The economy continues to be extremely resilient in the face of Federal Reserve tightening and almost $60-a-barrel oil prices," said Steven A. Wood, chief economist at Insight Economics in Danville, Calif.

The Bush administration lauded the report as evidence that its economic policies were working.

"America's economy is on the right path," said Treasury Secretary John W. Snow.

The report showed broad strength. Business spending spiked 9 percent, after jumping 5.7 percent in the January-March quarter. Consumer spending rose 3.3 percent, down from the previous quarter's 3.5 percent but still strong in the face of gasoline price shocks.

Exports also grew while imports shrank, narrowing the trade deficit and making trade a positive contributor to gross domestic product for the first time in two years.

With a relatively weak dollar making U.S. exports cheaper, "we are in a more competitive position against many countries," said Gary Thayer, chief economist at brokerage A.G. Edwards. "This is the first of maybe several quarters of good trade numbers."

Most notable in the report was a sharp annualized decline of $6.4 billion in inventories of unsold goods — the first such drawdown in two years. Fearing a slowdown earlier in the quarter, businesses curbed production. But consumers kept buying, whittling away stocks on store shelves. Inventories of autos, for example, were pared through aggressive sales promotions by General Motors Corp. and others.

The overall inventory reduction cut about 2.4 percentage points from second-quarter growth — suggesting the economy otherwise could have expanded by as much as 5.8 percent.

"The replenishment of diminished inventories soon will quicken economic activity," John Lonski, chief economist at Moody's Investors Service, said in a report yesterday.

He added that inventory depletion of the size seen in the second quarter normally occurs during recessions — efforts to replenish such inventories "helps to power the economy out of a recession."

Some analysts are forecasting that growth in the July-September period could hit or top 4 percent.

A separate report yesterday suggested that inflation remains tame. The employment cost index, a broad gauge of what employers pay in wages and benefits, rose 0.7 percent in the second quarter, the Labor Department reported. That matched the first quarter's advance, equaling the smallest increase since March 1999. Those figures are not annualized.

Meager wage and benefit gains "are not so good for workers, but it shows that businesses are finding ways to restrain costs," economist Thayer said.

With a strong economy, don't expect the Fed to stop hiking interest rates anytime soon, analysts said.

Concerns about higher interest rates were partly blamed for declines in major stock indexes yesterday. Bond yields ticked higher.