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Analysts hail US economy despite slowing GDP growth

US growth slowed marginally to 3.4 percent in the second quarter, the government said on Friday, but analysts said the world's biggest economy remained in fine form.

GDP growth in the quarter to June decelerated from the pace of 3.8 percent seen in the previous three months, the Department of Commerce said in a first estimate.

The figure was just shy of economists' forecasts for GDP growth of 3.5 percent in the June quarter, but strong enough to draw a ringing endorsement from US Treasury Secretary John Snow.

The GDP report "confirms the fact that America's economy is on the right path," he said, pointing to solid job creation, rising stock markets and relatively low interest rates.

"The details of the report are actually stronger than the headline," said Sal Guatieri, chief economist at the BMO Financial Group.

"There's really no evidence of weakness in any area of the economy in this report," he said.

But the US Commerce Department also revised down growth figures for previous years.

It said that from 2001 -- when the US economy lapsed into recession during President George W. Bush's first year in office -- to last year, the economy grew at an annual tick of 2.8 percent and not 3.1 percent, as previously thought.

Downward revisions for investment in information technology and software were the major cause of the weaker growth estimate.

The revised data show the recovery since the 2001 recession was the weakest since World War II, but they still compare favorably with stagnant growth in Europe and Japan over the period. As a result of Friday's figure, GDP has increased 3.6 percent in the past year.

Consumer spending, the motor of the US economy, was up 3.3 percent in the three months, compared with 3.5 percent in the previous quarter. Spending on durable goods such as cars and refrigerators jumped 8.3 percent.

In June, General Motors Corp launch a hugely popular price discount program that saw its showroom sales rocket and forced rival car makers into following suit.

Foreign trade, normally the US economy's Achilles heel, was surprisingly good in the June quarter.

Exports surged 14.5 percent, while imports were down 2.0 percent, ensuring that trade made its biggest contribution to GDP since the final quarter of 1996.

Corporate investment rose 9.3 percent. But inventories were a large drag on GDP, subtracting 2.32 percentage points from growth, as companies drew down about US$6.4 billion worth of goods.

Analysts said that could set the stage for a rebound in production, and hence growth, later in the year.

Consumer inflation spiked higher as energy costs hit new highs in the second quarter, the GDP report showed.

The personal consumption expenditure price index -- the Federal Reserve's preferred gauge for inflation -- increased at a 3.3 percent annual rate, up from 2.3 percent before.

But the core PCE price index -- which removes volatile food and energy costs -- increased at a 1.8 percent rate, down from 2.4 percent in the first quarter.

The Fed has boosted US interest rates nine times to keep inflationary pressures under control. It is expected to raise the headline rate to 3.5 percent when its policy-making committee next meets on Aug. 9.

"Strong, broad-based growth is the just the ticket the Fed needs to support its interest rate hike program," said Joel Naroff of Naroff Economic Advisors.

"And the [Fed] members can point to this report and say the economy is in good shape and does not need much stimulus, if any. Thus, as long as growth keeps up, look for more Fed rate hikes," he said.
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