At 1.3%, economic growth still anemic; drought called drag
The U.S. economy grew at a sluggish 1.3 percent annual rate in the April-June quarter, held back by the severe drought that reduced farm production in the Midwest.
The growth rate, a measure of the nation’s gross domestic product, was lowered from a previous estimate of 1.7 percent, the Commerce Department said Thursday.
About half of the downward revision to growth came from a decline in farm production. The estimate for crop production was lowered by $12 billion. But economic growth also was weaker because of slower growth in consumer spending and exports.
Economists said that Midwest drought would likely be a drag on growth in the JulySeptember quarter.
But Paul Ashworth, chief U.S. economist at Capital Economics, said that once the drought eases and crop yields rebound to normal levels, the farm sector will help economic growth.
Growth slowed from the 2 percent rate in the January-March and isn’t expected to exceed that level for the rest of the year. Growth at or below 2 percent is typically too slow to lower the unemployment rate, which was 8.1 percent in August.
Many economists expect growth to hover near or below 2 percent and unemployment to stay around 8 percent for the rest of the year. In Arkansas, the unemployment rate in August was 7.3 percent.
A spate of data Thursday painted a mixed picture of the U.S. economy: Demand for long-lasting manufactured goods fell, and slightly fewer people signed contracts to buy homes. At the same time, the job market looked only a little better.
Taken together, the reports suggest the economy is growing only modestly and not quickly enough to spur much hiring.
“The economy overall has only weak forward momentum,” Nigel Gault, chief U.S. economist at IHS Global Insight, said in a note to clients. “The news from housing may be improving, but manufacturing is struggling now.”
Companies cut orders for long-lasting goods by 13.2 percent in August, the Commerce Department said. That was the biggest drop in more than three years but it was largely influenced by a 102 percent decline in volatile aircraft orders. Excluding transportation equipment, orders fell only 1.6 percent. And in a positive sign, orders in a category that reflect business investment plans rose 1.1 percent, the first increase since May.
The number of Americans who signed contracts to buy previously owned homes fell in August from a two-year high in July. The National Association of Realtors said its index of sales agreements fell 2.6 percent to 99.2. That’s just below the reading of 100 that is considered healthy. Still, the index is 10.7 percent higher than a year ago.
One report appeared to offer some hope that the job market will improve. Weekly applications for unemployment benefits fell 26,000 to a seasonally adjusted 359,000, the lowest level in two months, the Labor Department said. The four-week average, a less volatile measure, fell to 374,000.
Applications are a measure of the pace of layoffs. When they consistently fall below 375,000, it typically indicates that hiring is strong enough to lower the unemployment rate.
The weekly figures can be volatile, causing most economists to focus on the four-week average.
Economists were mildly encouraged by the unemployment applications. Still, many expect the government’s employment report for September to show only modest job gains, perhaps about 100,000. That’s about the same as in August. The September jobs report will be released next week.
“The labor market is not getting any worse,” said Neil Dutta, head of U.S. economics at Renaissance Macro Research LLC. “But jobless claims only tell you one side of the equation, so they don’t automatically mean that hiring is going up.”
In its annual revision to its employment data, the Labor Department said Thursday that 386,000 more jobs were created in the year that ended in March than it originally had reported. The revision is a preliminary estimate, with a final figure coming in February.
“Maybe things are better than we think,” said Chris Rupkey, chief financial economist at the Bank of Tokyo-Mitsubishi, noting that the figures meant the economy added an average of more than 30,000 jobs each month during that period than initially thought.
The new data, culled from state unemployment insurance tax records, showed the economy added 453,000 more private-sector jobs. But government jobs dropped 67,000 more than originally reported.
The result is there were 133.25 million people employed in nonfarm jobs at the end of March instead of 132.86 million, or about 0.3 percent more than originally thought.
That’s within the standard range for revisions, the Labor Department said. Over the past 10 years, the so-called annual benchmark revision has been plus or minus 0.3 percent of the work force.
The biggest jobs gains were 145,000 in trade, transportation and utilities, 99,000 in leisure and hospitality, and 85,000 in construction. Manufacturing produced 25,000 fewer jobs than originally reported.