The U.S. economy contracted at a 1 percent pace in the second quarter, less than the 6.4 percent pace in the first quarter and a sign that the recession could be waning.

Less cutbacks in business spending, more spending by the federal and local governments and a narrowing trade gap helped boost the gross domestic product, but consumers continued to pull back, a Commerce Department report showed.

Businesses cut spending on equipment and software at a 9 percent pace, compared with a 36.4 percent drop in the first quarter. Spending on plants, office buildings and other commercial construction also contracted at a rate of 8.9 percent, better than the annualized drop of 43.6 percent in the first quarter.

Meanwhile, consumers reduced spending at a rate of 1.2 percent, compared with a 0.6 percent pace rise in the first quarter. Housing also continued to drag down the economy as builders cut spending at a 29.3 percent rate, which was a slight improvement from the 38.2 percent annualized decrease in the first quarter.

Federal Reserve Chairman Ben Bernanke has said that he believes the recession will end later this year and many analysts predict the economy will grow at around a 1.5 percent pace in the third quarter.