July 25 (Bloomberg) -- The U.S. economy probably grew at a slower pace in the second quarter than in the prior three months as consumers, who spent more for gasoline, cut back on other purchases, economists forecast the government's initial report to show Friday.

Gross domestic product, the sum of all goods and services produced in the world's largest economy, probably increased at an inflation-adjusted 3.7 percent annual rate from April through June after rising at a 3.9 percent pace, according to the median forecast in a Bloomberg News survey.

Orders for durable goods probably rose in June, while Americans bought fewer homes and cars, other reports are forecast to show. Business spending underpinned growth at a time when consumer purchases of homes, cars and other goods cooled. Federal Reserve Chairman Alan Greenspan last week said the soft patch'' in the economy will prove short-lived.''

The second quarter was the pause that refreshes,'' said Drew Matus, a senior economist at Lehman Brothers Inc. in New York, who forecast growth of 3.8 percent from April through June. We are expecting very strong rates of employment growth that will help spending accelerate'' in coming months.

Stronger job, income and economic growth may help boost support for President George W. Bush in his bid for re-election against Democratic presidential candidate John Kerry. A Wall Street Journal and NBC News poll taken July 19-21 showed Bush leading Kerry 47 percent to 45 percent, within the survey's 3.4 percentage point margin of error.

The poll of 813 registered voters showed many aren't convinced that Kerry, a four-term U.S. senator from Massachusetts who heads to his party convention tomorrow, is capable of dealing with national security.

More Broad-Based

The economic expansion has become more broad-based and has produced notable gains in employment,'' Greenspan told lawmakers last week. Higher fuel prices, by eroding households' disposable income, have accounted for at least some of the observed softness in consumer spending of late, a softness which should prove short- lived.''

Gasoline averaged a record $1.97 a gallon in the second quarter, up 16 percent from $1.70 a gallon in the prior three months, according to Department of Energy statistics.

Business spending is giving a lift to the economy at a time when consumer purchases slow, a reflection of the absence of tax refund checks and less refinancing. The second-quarter GDP report is also expected to show additions to inventories helped the economy.

Sales surged 28 percent to a record $7.6 billion at Caterpillar Inc., and the world's biggest maker of earthmoving equipment said last week that it quickly boosted production to meet demand.

Unprecedented

This upturn is unprecedented,'' said Lynn McPheeters, chief financial officer at Caterpillar, in an interview last week. There's not a supply chain in the world that could respond to the kind of upturn that we have seen in the last nine months.''

A report on Wednesday from the Commerce Department is forecast to show a 1.5 percent increase in orders for durable goods during June after a 1.8 percent fall. On Friday, the National Association of Purchasing Management-Chicago is projected to report its index of manufacturing and other business activity in the Chicago area rose to 60 in July from 56.4. Readings of more than 50 signal expansion.

Solid corporate profit performance remains a strong underpinning for capital expenditures,'' said Sherry Cooper, chief economist at BMO Nesbitt Burns in Toronto.

Caution and Optimism

At the same time, Office Depot Inc., the world's No. 2 office- supplies retailer, is approaching the second half of 2004 with a mixture of both caution and optimism,'' said Chief Executive Bruce Nelson in a statement. The company, which enjoyed a 34 percent rise in second-quarter profit, said its retail sales in the last few weeks have been below expectations.

Home sales, lacking the pent-up demand that was evident earlier in the year when Americans bought in advance of higher mortgage rates, may be hard-pressed to accelerate. The National Association of Realtors is forecast to report tomorrow that sales of previously owned homes, which make up 85 percent of the market, dropped to an annual rate of 6.65 million in June from May's record 6.8 million pace.

Rising mortgage rates generated a rush by potential homebuyers to close transactions before rates move even higher,'' said Steven Wood, chief economist at Insight Economics in Danville, California.

New home purchases, reported Tuesday by the Commerce are forecast to fall to a 1.261 million-unit annual rate in June from an all-time high 1.369 million pace a month earlier, according to a Bloomberg survey.

A report Thursday from the Labor Department is forecast to show labor costs increased in the second quarter at a 0.8 percent after rising 1.1 percent in the prior three months. Benefit costs, which account for about a third of the employment cost index, have been rising more than wages and salaries.

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