The struggling U.S. economy managed to shake off a few more anchors in the April-to-June quarter as growth improved to a better-than-expected annual rate of 1.7 per cent.

That's up from 1.1 per cent growth in the previous quarter — a figure that was revised lower from an initial estimate of 1.8 per cent.

The pickup came as a surprise to economists who had been forecasting annualized growth of just 1.0 per cent in the second quarter.

Businesses boosted their spending by 4.6 per cent in the quarter, while spending on home construction grew by 13.4 per cent.

Consumer spending remained sluggish. But businesses appear to think that could change, as figures showed they boosted their inventories in the second quarter. That's usually a sign that they expect better sales.

Growth to improve later this year

The U.S. Federal Reserve has forecast that growth will improve later this year and Fed chair Ben Bernanke has said the central bank could begin to scale back its $85-billion-a-month bond purchase program in the fall if the economy strengthens.

But that will depend on inflation and unemployment figures. The U.S. jobless rate, at 7.6 per cent, is still high by historical standards.

A separate, closely watched employment report also released Wednesday said private employers added 200,000 jobs in July. That beat economists' forecasts.

"We have an upside surprise in the GDP which speaks volumes for the job recovery that we're putting together," said Andre Bakhos, director of market analytics at Lek Securities in New York.

"The recovery in the economy is starting to take root."   

With files from The Associated Press and Reuters