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Friday, July 30, 2010 US Economy Slows Growth In 2Q - Strength Of Recovery Questioned
WASHINGTON DC - The U.S. economy slowed in the second quarter of this year and the government said the recession was deeper than earlier believed, adding to concerns over the recovery's strength. The Commerce Department Friday said U.S. gross domestic product, or the value of all goods and services produced, rose at an annualized seasonally adjusted rate of 2.4 percent in April to June, the Wall Street Journal reported. In its first estimate of the economy's benchmark indicator, the government report showed growth was lifted by business investments and exports. Consumer spending, a key growth engine for the U.S. economy, made a smaller contribution to growth. Economists polled by Dow Jones Newswires were expecting GDP to rise by 2.5 percent in the second quarter. In the first quarter, the economy grew by 3.7 percent, revised up from an originally reported 2.7 percent increase. But growth estimates all the way back to the start of 2007 were revised lower. After suffering its worst downturn since the 1930s, the U.S. economy began taking small steps forward about a year ago, helped by the Federal Reserve's slashing of lending rates and the government tax cuts. But recent data have raised questions about the recovery's durability. The job market remains weak, with almost one in 10 Americans unemployed, and growth in consumer spending and manufacturing appears to be slowing down. The government revision of data over the past three years showed that the economy's exit from its deep slump was weaker than previously estimated. In the final quarter of 2009, for example, GDP rose at an annualized rate of 5.0% as consumer spending didn't grow as much as previously thought. The earlier estimate was that GDP increased by 5.6 percent. In the most recent quarter available, consumer spending rose by a moderate annualized rate of 1.6% in April to June. Spending by Americans, which accounts for more than two-thirds of the economy, rose by 1.9% in the first three months of the year. Meantime, business spending on equipment and software continued to surge, increasing by 21.9 percent in the second quarter, compared with a 20.4 percent rise in the first three months. The figures highlight the contrast in the economy between high company profits and a persistently feeble jobs market keeping consumers at bay. Federal Reserve Chairman Ben Bernanke, who last week said the economy's outlook was "unusually uncertain", has stressed the strength of the recovery will depend on whether consumers spend and companies invest enough to make up for fading support from the government. With unemployment still at 9.5 percent and Americans worried that taxes will need to rise to cut a huge budget deficit, that remains in doubt. When they meet Aug. 10, Fed officials are widely expected to repeat they see interest rates staying close to zero for a while and are likely to at least discuss ways in which they could support the economy further. A Fed official Thursday warned that deflation is a growing risk for the economy. Economic growth in the U.S. during the second quarter slowed to 2.4 percent, indicating that the recovery has been weaker than previously expected. David Wessel, Dennis Berman and Evan Newmark discuss. Also, Dennis Berman tells the story about one of the leaders at Tiananmen Square who is now one of the top candidates to manage Berkshire Hathaway's investment portfolio. In a sign of the economy's weakness, Friday's report showed price increases continued to move down in the second quarter from already low levels. The underlying inflation rate -- which excludes volatile moves in food and energy prices and is closely watched by the Fed -- increased by 1.1 percent in the April-to-June period from the previous quarter. That was the lowest reading of the core personal consumption expenditure index since the first three months of 2009 and came after a 1.2 percent rise in the first quarter of this year. Other inflation gauges within the government's report were also muted. The overall price index for personal consumption expenditures rose by only 0.1 percent in the second quarter, slowing sharply from a 2.1 percent gain in the first quarter. Gross domestic purchase prices rose just 0.1 percent, after a 2.1 percent increase in the first quarter. The chain-weighted GDP price index increased by 1.8 percent, compared to 1.0 percent in the first three months. For all of 2009, the government said the U.S. economy contracted by 2.6 percent, compared to the previously estimated 2.4 percent decline. In the whole of 2008, GDP was flat, instead of rising 0.4 percent as previously estimated. In 2007, the world's largest economy expanded by 2.1 percent, down from an originally reported 1.9 percent increase.
Author: Staff Writer Source: The Wall Street Journal
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