Mixed re­ports on re­cov­ery as growth slows in 2nd quar­ter

pe­riod’s gain of 2.4% in out­put suf­fers in com­par­i­son with beefed-up 1st-quar­ter es­ti­mate

Austin American-Statesman - - BUSINESS & PERSONAL FINANCE - By Kevin G. Hall

WASHINGTON — The U.S. econ­omy slowed sharply from April through June, the govern­ment re­ported Fri­day, grow­ing at an an­nu­al­ized rate of just 2.4 per­cent af­ter sev­eral quar­ters of more ro­bust growth.

The 2.4 per­cent rate of growth in the nation’s gross do­mes­tic prod­uct — or GDP, the value of all goods and ser­vices pro­duced within the U.S. — fell within the range of an­a­lysts’ ex­pec­ta­tions. What wasn’t ex­pected, how­ever, was an up­ward re­vi­sion to the growth rate in the first quar­ter.

The Com­merce Depart­ment had re­ported that the econ­omy grew at an an­nual rate of 2.7 per­cent from Jan­uary through March, but Fri­day it said that first-quar­ter growth was ac­tu­ally 3.7 per­cent.

That up­ward re­vi­sion makes sec­ond-quar­ter growth ap­pear even weaker by com­par­i­son, and that may help ex­plain why for weeks many busi­nesses and econ­o­mists have been dis­cussing what felt like a jolt­ing slow­down in the U.S. econ­omy.

Fri­day’s re­port in­cluded re­vi­sions to data from pre­vi­ous years, and the re­vi­sions sug­gest that things weren’t what they ap­peared to be at the time. The new data show that the eco­nomic con­trac­tion from De­cem­ber 2007 to June 2009, a pe­riod in which the econ­omy is com­monly viewed as in re­ces­sion, was 4.1 per­cent, worse than the prior es­ti­mate of 3.7 per­cent.

“It ap­pears that the re­ces­sion was even worse than pre­vi­ously thought,” said Martin Re­galia, the chief econ­o­mist for the U.S. Cham­ber of Com­merce, in a state­ment. “Thus, while the re­ces­sion was some­what deeper than orig­i­nally thought, the re­cov­ery was also much more tepid than pre­vi­ously thought, and is slow­ing rather than ac­cel­er­at­ing.”

There was some good news in Fri­day’s mixed re­ports.

U.S. ex­ports grew at an an­nual rate of 10.3 per­cent in the sec­ond quar­ter, and busi­ness in­vest­ment rose at an an- nual rate of 17 per­cent, af­ter a rate of 7.8 per­cent in the first quar­ter. It means busi­nesses are con­fi­dent enough to be­gin spend­ing some of that cash that many large firms have been sit­ting on dur­ing the re­ces­sion.

Im­ports grew at an an­nual rate of 28.8 per­cent in the sec­ond quar­ter, their fastest pace since early 1984, the govern­ment said, a sig­nal that busi­nesses were gob­bling them up to build in­ven­to­ries to meet grow­ing de­mand.

“The best news in the re­port was the sec­ond 20 per­cent-plus an­nu­al­ized in­crease in busi­ness equip­ment and soft­ware spend­ing in a row (led by high­tech). Busi­nesses are much read­ier to spend on cap­i­tal equip­ment and soft­ware than they are to re-hire work­ers,” Nigel Gault, chief U.S. econ­o­mist for fore­caster IHS Global In­sight, said in a re­search note. “The not-so-good news is that much of this ex­tra equip­ment is im­ported.”

The surge in im­ports, how­ever, shaved as much as 2 per- cen­t­age points off U.S. growth, since GDP mea­sures goods and ser­vices pro­duced in the United States, and im­ports amount to a sub­trac­tion in the equa­tion.

The auto in­dus­try, which im­ports fin­ished prod­ucts and com­po­nents for U.S. assem­bly from Canada and Mex­ico, is thought to be re­spon­si­ble for a sig­nif­i­cant por­tion of the im­port growth.

The quar­terly GDP re­port from the Bureau of Eco­nomic Anal­y­sis was less en­cour­ag­ing on con­sump­tion, which drives about two-thirds of U.S. eco­nomic ac­tiv­ity. Con­sump­tion rose 1.6 per­cent from April through June, down from a re­vised 1.9 per­cent rate in the first three months of 2010.

“Con­sumers are trau­ma­tized. They’re pay­ing down debt. There is a short­age of credit avail­abil­ity for many small busi­nesses and con­sumers,” said Lyle Gram­ley, a for­mer Fed­eral Re­serve gover­nor and the se­nior eco­nomic re­searcher at the Po­tomac Re­search Group. “When we look at the fu­ture, it is about as dif­fi­cult now to make a fore­cast as any­time I re­mem­ber.”

Con­firm­ing the slug­gish con­sump­tion data, the Uni­ver­sity of Michi­gan Sur­veys of Con­sumers, which mea­sure con­sumer sen­ti­ment, fell sharply in July, al­though slightly less than main­stream an­a­lysts had fore­cast.

Still, most con­sen­sus fore­casts pre­dict growth of 2 to 2.5 per­cent in the sec­ond half of this year, not brisk enough to make a se­ri­ous dent in the num­ber of un­em­ployed work­ers, which now ex­ceeds 15 mil­lion peo­ple.

“Con­trary to the of­ten-made claim that the near-term eco­nomic fu­ture is ‘un­cer­tain,’ to­day’s re­port pro­vides near cer­tainty that very high un­em­ploy­ment rates will — ab­sent ag­gres­sive ac­tion by pol­i­cy­mak­ers — plague the econ­omy for years to come,” Josh Bivens, the chief econ­o­mist for the lib­eral Eco­nomic Pol­icy In­sti­tute, which ad­vo­cates govern­ment stim­u­lus spend­ing, said in a state­ment.

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