Economy in U.S. Probably Grew at Slower Pace in Second Quarter

The U.S. economy probably slowed in the second quarter even more than initially estimated as companies reined in inventories and the trade deficit widened, economists said before a report today.

Growth cooled to a 1.4 percent pace from April through June, the smallest gain in the year-old recovery, rather than the 2.4 percent projected last month, according to the median forecast of 81 economists surveyed by Bloomberg News. The world’s largest economy expanded at a 3.7 percent rate in the first three months of 2010.

“It’s a much weaker recovery,” Julia Coronado, senior U.S. economist at BNP Paribas in New York. “The whole pickup is a lot less perky than we thought and that is very worrisome.”

Federal Reserve Chairman Ben S. Bernanke, who addresses central bankers from around the world today in Jackson Hole, Wyoming, may shed more light on policy makers’ outlook in the wake of reports that signaled a growing risk of a renewed U.S. economic slump. Slowdowns in housing, business investment and consumer spending are prompting economists to cut second-half growth forecasts.

The Commerce Department’s revised second-quarter figures will be released at 8:30 a.m. in Washington. Forecasts in the Bloomberg survey range from 0.5 percent to 2.2 percent. The estimate is the second for the quarter, with the final figures set for release on Sept. 30.

Today’s report may show consumer spending, which accounts for about 70 percent of the economy, rose at an unrevised 1.6 percent pace last quarter. Purchases increased at a 1.9 percent rate from January through March.

Homes, Spending

A lack of job growth, declines in household wealth following slumps in stocks and housing, and the drive to reduce debt and boost savings are reasons consumer spending may struggle to strengthen.

J. Crew Group Inc., the New York-based retailer of sportswear, casual and career clothing, yesterday lowered its full-year earnings forecast.

“The continued economic uncertainty we’re seeing is leading us to take a more conservative outlook for the second half of the year,” Chief Executive Officer Mickey Drexler said on a conference call.

Figures this week showing a further slide in home sales and a drop in business spending on equipment prompted economists such as Joseph LaVorgna of Deutsche Bank Securities Inc. in New York to reduce third-quarter growth estimates.

Recession Odds

Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, this week said the likelihood of the economy slipping back into a recession is now 33 percent, up from 20 percent three months ago. New York University economist and forecaster Nouriel Roubini, who predicted the financial crisis, said this week the odds of another recession are 40 percent.

“Fading fiscal stimulus and the end of the inventory swing in manufacturing strongly argue for a slowing in growth,” Zandi told reporters in Washington.

The economy is a top issue for voters in the November congressional elections and polls show the public is increasingly skeptical of President Barack Obama’s performance. Public approval for the president’s handling of the economy was at 41 percent in an Aug. 11-16 Associated Press-GfK survey, an all-time low and down from 50 percent last July.

House Republican leader John Boehner this week called on President Barack Obama to fire Treasury Secretary Timothy Geithner and the other remaining members of the president’s economic team, saying the administration’s stimulus policies are failing to create jobs.

Stocks Lower

The growth slowdown has hurt stocks. The Standard & Poor’s 500 Index has declined 6.1 percent this year through yesterday.

The trade gap adjusted for inflation, the figures used in calculating GDP, averaged $48.1 billion a month in the second quarter, up from $42.5 billion in the previous three months. A surge in imports swamped gains in exports, indicating producers overseas benefited more from growing U.S. demand.

Business investment, one of the economy’s few bright spots, powered ahead in the second quarter. Spending on equipment and software rose at a 22 percent pace, the Commerce Department’s initial GDP estimate showed, following a 20 percent gain in the first quarter.

Another report today may show consumer confidence improved this month. The Reuters/University of Michigan final sentiment index for August probably rose to 69.6 from 67.8 at the end of July, according to the survey median. The report is scheduled for 9:55 a.m.

                        Bloomberg Survey

================================================================
                               GDP Personal      GDP  U of Mich
                            Annual Consump.   Prices    Conf.
                              QOQ%     QOQ%     QOQ%    Index
================================================================

Date of Release              08/27    08/27    08/27    08/27
Observation Period            2Q S     2Q S     2Q S   Aug. F
----------------------------------------------------------------
Median                        1.4%     1.6%     1.8%     69.6
Average                       1.4%     1.6%     1.8%     69.4
High Forecast                 2.2%     1.8%     2.0%     72.0
Low Forecast                  0.5%     1.5%     1.4%     65.7
Number of Participants          81       14       36       65
Previous                      2.4%     1.6%     1.8%     69.6
----------------------------------------------------------------
4CAST Ltd.                    0.9%     ---      1.8%     70.0
ABN Amro Bank                 1.7%     ---      ---      69.6
Action Economics              1.1%     ---      1.8%     70.0
Aletti Gestielle SGR          1.1%     1.6%     1.8%     69.7
Ameriprise Financial Inc      1.4%     1.7%     1.8%     69.0
Banesto                       1.5%     ---      ---      68.7
Bank of Tokyo- Mitsubishi     1.1%     ---      ---      69.2
Bantleon Bank AG              1.2%     ---      ---      69.0
Barclays Capital              1.1%     1.6%     1.8%     69.5
Bayerische Landesbank         1.4%     ---      1.8%     69.6
BBVA                          1.8%     1.6%     1.8%     69.5
BMO Capital Markets           1.5%     ---      1.8%     69.6
BNP Paribas                   1.3%     ---      1.8%     69.0
BofA Merrill Lynch Research   1.5%     ---      1.8%     68.5
Briefing.com                  1.3%     ---      1.8%     69.6
Capital Economics             1.5%     ---      ---      69.6
CIBC World Markets            1.5%     ---      1.8%     ---
Citi                          1.1%     ---      1.8%     68.0
ClearView Economics           1.5%     ---      1.6%     70.0
Commerzbank AG                1.1%     ---      ---      69.6
Credit Agricole CIB           1.3%     1.6%     1.8%     70.0
Credit Suisse                 1.2%     ---      1.8%     69.0
Danske Bank                   1.3%     1.8%     ---      ---
DekaBank                      1.6%     ---      ---      70.0
Desjardins Group              1.5%     ---      ---      69.6
Deutsche Bank Securities      1.0%     ---      ---      69.7
Deutsche Postbank AG          1.6%     ---      ---      69.6
DZ Bank                       1.7%     ---      1.8%     69.0
Exane                         1.5%     ---      ---      ---
First Trust Advisors          1.1%     ---      1.8%     69.6
FTN Financial                 1.4%     ---      ---      69.0
Goldman, Sachs & Co.          1.2%     ---      1.8%     ---
Helaba                        1.0%     ---      ---      ---
HSBC Markets                  1.3%     ---      ---      70.0
Hugh Johnson Advisors         1.5%     ---      1.8%     69.6
IDEAglobal                    1.9%     1.6%     1.5%     70.0
IHS Global Insight            1.1%     ---      ---      71.0
Informa Global Markets        1.1%     1.5%     2.0%     68.0
ING Financial Markets         1.8%     ---      ---      71.0
Insight Economics             1.2%     ---      1.8%     70.0
Intesa-SanPaulo               1.1%     ---      ---      ---
J.P. Morgan Chase             1.1%     ---      ---      69.0
Janney Montgomery Scott       2.0%     1.6%     1.8%     ---
Jefferies & Co.               1.8%     ---      ---      70.0
Landesbank Berlin             2.0%     ---      ---      68.5
Landesbank BW                 1.3%     ---      ---      70.0
Maria Fiorini Ramirez         1.4%     ---      1.8%     ---
MF Global                     1.3%     1.6%     1.8%     69.6
MFC Global Investment         1.2%     1.5%     1.8%     69.0
Mizuho Securities             1.0%     ---      ---      68.0
Moody’s Economy.com           1.2%     ---      ---      68.5
Morgan Keegan & Co.           1.3%     ---      1.4%     ---
Morgan Stanley & Co.          1.3%     ---      ---      ---
National Bank Financial       1.2%     1.6%     ---      ---
Newedge                       0.5%     ---      ---      70.2
Nomura Securities Intl.       1.5%     ---      ---      ---
Nord/LB                       1.6%     ---      1.8%     70.0
Pierpont Securities LLC       1.1%     ---      ---      69.8
PineBridge Investments        1.9%     ---      ---      72.0
PNC Bank                      1.4%     ---      1.7%     ---
Raiffeisen Zentralbank        1.4%     ---      1.8%     70.0
Raymond James                 1.4%     ---      ---      70.0
RBC Capital Markets           1.5%     ---      ---      69.0
RBS Securities Inc.           1.2%     ---      1.8%     69.5
Scotia Capital                1.4%     ---      1.8%     ---
Societe Generale              1.4%     ---      ---      70.0
Standard Chartered            1.2%     1.5%     ---      70.0
State Street Global Markets   1.2%     1.6%     1.8%     69.0
Stone & McCarthy Research     1.1%     ---      1.8%     70.0
TD Securities                 1.3%     ---      ---      69.0
Thomson Reuters/IFR           1.5%     ---      ---      66.5
Tullett Prebon                1.7%     ---      ---      69.0
UBS                           1.2%     ---      ---      69.0
UniCredit Research            1.4%     ---      ---      ---
Union Investment              2.2%     ---      ---      69.4
University of Maryland        1.5%     ---      1.8%     68.5
Wells Fargo & Co.             1.5%     ---      ---      ---
WestLB AG                     1.7%     ---      ---      69.0
Westpac Banking Co.           1.2%     ---      ---      70.0
Woodley Park Research         1.4%     ---      ---      65.7
Wrightson ICAP                1.5%     ---      ---      70.0
================================================================

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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