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
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.