U.S. Economy Grew 2.4% in Second Quarter, Below Forecast
The U.S. economy slowed in the second quarter as a scarcity of jobs eroded consumer spending, leaving the rebound dependent on a surge in business investment.
Gross domestic product grew at a 2.4 percent annual pace, less than forecast, after a 3.7 percent first-quarter gain that was larger than previously estimated, according to Commerce Department data issued today in Washington. Other reports showed business activity unexpectedly accelerated in July and consumer sentiment fell less than projected.
“The economy is muddling through,” Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research in New York, said in an interview. “We’re probably not going to see a really strong number for a while. We need to see some pickup in job growth.”
Stocks fluctuated between gains and losses as the reports on confidence and on activity by Chicago-area business managers eased concern the economic rebound was losing steam. Efforts to diversify from consumers to businesses is among reasons why companies like Amazon.com Inc. are pouring money into new plants and equipment, which is helping sustain growth.
The median forecast of 81 economists surveyed by Bloomberg News projected a 2.6 percent second-quarter growth rate. Estimates ranged from gains of 1 percent to 4 percent.
The Institute for Supply Management-Chicago Inc.’s business barometer rose to 62.3 this month, exceeding the median forecast of economists surveyed which anticipated the measure would drop to 56. The June reading was 59.1 and figures greater than 50 signal expansion.
The Thomson Reuters/University of Michigan final index of consumer sentiment declined to 67.8 this month from 76 in June. A preliminary measure issued earlier this month was 66.5.
The Standard & Poor’s 500 Index fell 0.1 percent to 1,100.07 at 12:12 p.m. in New York. The yield on the 2-year Treasury note drop to 0.55 percent from 0.58 late yesterday and touched a record-low 0.546 percent.
The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to the Commerce Department’s annual revisions also issued today.
The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the report showed. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.
Consumer spending, which accounts for about 70 percent of the economy, rose at a 1.6 percent pace last quarter, compared with a 1.9 percent rate the previous three months that was smaller than previously estimated, today’s report showed. Job gains have been slow to take hold, curbing household purchases.
The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. So far this year, company payrolls grew by 593,000 workers, according to Labor Department figures earlier this month.
More than 7 out of 10 Americans say the economy is still mired in recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll.
Just like the experts, Americans are torn about whether the federal government should focus on curbing spending or creating jobs, the poll conducted July 9-12 shows. Seven of 10 Americans say reducing unemployment is the priority. At the same time, the public is skeptical of the President Barack Obama’s stimulus program and wary of more spending, with more than half saying the deficit is “dangerously out of control.”
Obama is trying to garner support for his plan to provide $12 billion in tax breaks, ease terms for loans guaranteed by the Small Business Administration and create a $30 billion fund to help community banks offer loans to small businesses.
The trade gap in the second quarter widened to $425.9 billion from $338.4 billion, subtracting 2.8 percentage points from growth, the biggest reduction since 1982, today’s report showed. Imports grew at a 29 percent pace, while exports climbed 10 percent.
Manufacturers in the U.S. are reaping the benefits of the global recovery. Caterpillar Inc., the world’s largest maker of construction equipment, last week raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment.
“You’ve got strong growth in India and China that provides demand for commodities,” Chief Financial Officer Ed Rapp said in an interview July 22. “Most of the mining is happening in the developing parts of the world.”
Gains in business investment are also supporting growth. Corporate spending on equipment and software jumped at a 22 percent annual rate, the biggest increase since 1997.
Amazon.com, the world’s largest online retailer, forecast third-quarter profit that missed analysts’ estimates after it cut prices on the Kindle, its best-selling product, and propelled capital spending to a record.
Under Chief Executive Officer Jeff Bezos, capital spending ballooned to $196 million last quarter as Amazon.com built more warehouses to safeguard a growing array of products that range from books to car parts. He’s also adding data centers to beef up a business of providing computing services to companies.
The jump in capital spending was the largest year-over-year increase for the second quarter since 2005, Amazon said.
The Federal Reserve’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.1 percent annual pace after an upwardly revised 1.2 percent rate in the first quarter, today’s report showed. The revision may help ease concern over deflation, or a projected drop in prices.
The GDP report also showed home construction rebounded from a weather-depressed first quarter as a government tax credit spurred sales. Inventories grew at a faster pace, adding a percentage point to growth, and government spending accelerated.
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