The U.S. economy expanded at an annual rate of 1.6 per cent in the second quarter of 2010, down from 3.7 per cent in the first quarter.

The pace reported Friday is slower than the 2.4 per cent rate the U.S. Commerce Department previously forecast the economy to grow by during the April-to-June period.

It's also slower than the 3.7 per cent pace the economy was expanding at in the first quarter.

"The U.S. economy is losing momentum, raising the risk of a deflationary double dip," BMO economist Jennifer Lee said.

The widening trade deficit subtracted nearly 3.4 percentage points from second-quarter growth, the largest hit from a trade imbalance since 1947, the government said.

The economy has now expanded for four straight quarters after a recession, but does not appear to be doing so at a pace that is fast enough to make a dent in unemployment, which sits at 9.5 per cent.

However, U.S. consumers did open their wallets a bit more during the quarter, with consumer spending increasing by two per cent, above the 1.9 per cent gain from Q1.