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 one 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 on Friday at a central bank conference in Jackson Hole, Wyoming, may hint at what tools policymakers can still use to spur growth.
“Consumers don’t look like they’re in much of a mood to buy,” said Robert Brusca, chief economist at Fact & Opinion Economics in New York. “The economy continues weaker than we thought. It looks like it’s losing momentum and trade reflects the weaker economic circumstances abroad.”
Stock-index futures extended earlier losses after the report. The contract on the Standard & Poor’s 500 Index maturing next month fell 0.6 per cent to 1,150.4 at 8.46 am in New York. Treasury securities rose, sending the yield on the benchmark 10-year note down to 2.19 per cent from 2.23 per cent late yesterday.
SURVEY RESULTS
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.
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The report also contained some positive news as corporate profits grew and wages and salaries were revised up at the start of the year to show the biggest gain in more than four years. 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.
Friday’s report follows recent cuts in forecasts by economists as the Standard & Poor’s 500 Index slumped 18 per cent between April 29 and August 8, following S&P’s downgrade of US debt amid wrangling over deficit-cutting measures and on rising concerns of a euro zone default.
CUTTING FORECASTS
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 said August 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 one per cent in the third quarter and 1.5 per cent in the fourth quarter, both from prior two per cent estimates. Goldman Sachs on August 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.
AUGUST PAYROLLS
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 September 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.
Lowe’s Cos, the second-largest US home-improvement retailer, said profit in its financial year 2011 will be less than it previously projected as sales drop at stores open more than a year. The company also announced it would close seven “under- performing” stores.
“Recent headlines regarding slowing growth and the US credit rating downgrade underscore the continued weakness in the US economy,” Robert A. Niblock, chairman and president, said on an August 15 conference call. “The volume of negative news and the unsettling impact on equity markets is having a significant effect on an already fragile consumer mindset.”
BOOST IN SALARIES
Wages and salaries climbed by $101.2 billion from January through March, the biggest increase since the last three months of 2006 and up from a prior estimate of $82.8 billion. Real disposable income, or after-tax earnings adjusted for inflation, climbed 1.2 per cent in the first quarter, rather than the 0.7 per cent gain previously estimated. They rose one per cent in the April-to-June period, also up from the 0.7 per cent prior calculation.
Friday’s report offered a first look at profits. Earnings climbed three per cent from the prior quarter, after rising one per cent in the prior period. They climbed 8.3 per cent from the same time last year.
Inventories subtracted 0.2 percentage point from growth last quarter, instead of adding 0.2 point, reflecting a smaller increase than previously estimated. Fewer exports also meant trade added 0.1 point to GDP rather than 0.6 percentage point.
The reductions were partly offset by the bigger increase in consumer spending and more business investment. Excluding trade and inventories, GDP grew at a 1.1 per cent annual rate, up from the 0.5 per cent prior estimate.