The US economy grew less than previously estimated in the second quarter, capping the weakest six months of the recovery that began in mid 2009.
Gross domestic product climbed at a 1 per cent annual rate from April through June, down from a 1.3 per cent prior estimate, revised Commerce Department figures showed on Friday in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.1 per cent increase. The reduction reflected a smaller increase in inventories and fewer exports.Slowing job growth and plunging confidence exacerbated by political gridlock and financial-market turmoil this month threaten to weigh on consumer and business spending for the rest of the year. Federal Reserve Chairman Ben S. Bernanke, speaking today at a central bank conference in Jackson Hole, Wyoming, may hint at what tools policy makers can still use to spur growth.
“There has been a lot of uncertainty built up in the third quarter,” Jonathan Basile, a senior economist at Credit Suisse in New York, said before the report. “It certainly doesn’t look like any major acceleration is in the offing.”Stock-index futures held earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing next month fell 0.4 per cent to 1,152.9 at 8:35 a.m. in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.20 per cent from 2.23 per cent late yesterday.
Forecasts of 81 economists in the GDP survey ranged from 0.3 per cent to 1.6 per cent. At $13.26 trillion in the second quarter, GDP has yet to surpass the pre-recession peak. The world’s largest economy grew at a 0.4 per cent rate in the first three months of the year.
The report also contained some positive news as corporate profits grew and wages and salaries were revised up at the start of the year.
Consumer spending, about 70 per cent of the economy, grew at a 0.4 per cent annual rate, the smallest gain in more than a year. Nonetheless, the reading was revised up from the 0.1 per cent previously estimated, reflecting more outlays on financial services, insurance and health care.Today’s report follows recent cuts in forecasts by economists as the Standard & Poor’s 500 Index slumped 18 per cent between April 29 and Aug.8, following S&P’s downgrade of US debt amid wrangling over deficit-cutting measures and on rising concerns of a euro zone default.IHS Global Insight Inc., a Lexington, Massachusetts-based research firm, this week raised the odds of a recession in the US to around 40 per cent from a prior 20 per cent to 25 per cent probability. It cut its growth forecast for 2011 to 1.6 per cent from a prior 2.5 per cent, adding that a “double-dip downturn is still not the most likely scenario.”
“It appears that the US economy is losing further momentum,” Goldman Sachs Group Inc. (GS) said Aug.19. While several indicators for July were “surprisingly strong,” economist Zach Pandl wrote that “timelier survey-based data have turned down sharply, and weakness in the hard statistics seems likely to follow.”
Goldman Sachs cut its GDP forecast to 1 per cent in the third quarter and 1.5 per cent in the fourth quarter, both from prior 2 per cent estimates. Goldman Sachs on Aug.5 said it saw a one-in-three chance of a renewed recession in the US.
Higher expenses for necessities like food and energy may have curtailed spending on less essential items in the second quarter. The cost of a gallon of regular gasoline climbed in May to about $4 a gallon, the highest in almost three years, according to AAA, the nation’s biggest auto group.Lack of jobs is discouraging shoppers. Payrolls grew by about 95,000 in August, according to the median forecast of economists surveyed so far by Bloomberg before the Sept.2 jobs report. That would compare with 117,000 in July which brought the average gain over the past three months to 111,000. Employment gains averaged 204,000 in the first four months of the year.
From / Gulf Today