WASHINGTON, D.C.: The US economy moved closer to emerging from recession in the second quarter, according to revised data Wednesday showing a smaller-than-expected 0.7 percent pace of output decline. The figure for gross domestic product (GDP) was better than last month’s estimate of a 1-percent drop, and stronger than the average estimate of private economists calling for a 1.2-percent annualized rate of decline.
The report appeared to confirm that the world’s biggest economy was emerging from its long recession and rebounding from a hefty 6.4-percent tumble in the first quarter of 2009.
The latest data “sets the stage for an improved economic outlook for the rest of 2009 and throughout 2010,” said Aaron Smith at Moody’s Economy.com.
“The downturn appears to have concluded this summer, and the economy is on track to grow for the first time in more than year in the third quarter. The initial phase of growth is being driven by rapid recoveries in housing and manufacturing, diminishing drags from equipment spending and nonresidential construction, and government support.”
Most economists expect the economy to show growth in the July-September quarter, in the range of 3 percent to 4 percent, in a rebound from the worst recession in decades, although some question the sustainability of growth.
Nigel Gault at IHS Global Insight said he expects growth of 3 percent to 3.5 percent in the third quarter and a “solid” fourth quarter.
But he said growth will slow to a 1.5-percent to 2-percent range in early 2010 “as the inventory effect weakens, as the effects on growth of fiscal and monetary stimulus lose some of their force, and as credit constraints continue to restrain demand.”
The latest GDP report showed consumer spending, the main driver of economic activity, fell at a 0.9-percent pace, one-tenth of a point better than in last month’s estimate.
One key factor in the GDP drop was a draw down in inventories as businesses curbed production in the face of uncertain conditions. The inventory adjustment subtracted 1.42 percentage points from GDP in the second quarter.
Stripping out inventories, real final sales—which some economists say is a good indication of the pace of activity—showed a 0.7-percent increase in the quarter.
One of the main drags on activity came from housing—investment in residential activity decreased 23.3 percent in the quarter, reflecting the deep slump in home building.
Other business investment fell 9.6 percent, which was not as bad as the first quarter when spending plunged 39 percent.
Federal government spending helped make up some of the decline, increasing 11.4 percent in the second quarter. State and local government expenditures were up 3.9 percent.
Trade helped contribute to growth. Even though exports fell 4.1 percent, imports were down 14.7 percent, shifting more production to the domestic economy.
Analysts say a key to sustaining any recovery will be job growth, which will boost consumer incomes and spending.
But unemployment rose to 9.7 percent in August, and forecasters expect Friday’s data for September will show a rise in joblessness to 9.9 percent with another 180,000 jobs lost. –AFP
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