Sun, Aug 28, 2011 - Page 11 News List

US second-quarter growth slows

WEAK PACE:Although the economy expanded by just 0.7 percent in the first half of this year, analysts said this did not mean that another recession was imminent

Reuters, WASHINGTON

The struggling US economy expanded even more slowly than previously thought in the second quarter of this year, but a breakdown of the growth suggested a new recession could be avoided.

GDP rose at an annual rate of 1 percent, the Commerce Department said on Friday, as restocking by businesses and growth in exports proved less strong than initially estimated.

“While confidence indicators have plummeted of late, the most timely hard numbers certainly do not suggest that the economy has fallen back into a recession,” said Harm Bandholz, chief US economist at UniCredit Research in New York.

“Instead, we still continue to expect that growth in the second half of the year will accelerate to about 2 percent,” Bandholz said.

The rate of growth between April and June was cut from the government’s first reading of 1.3 percent and followed a lethargic 0.4 percent pace in the first three months of this year.

This means the economy grew only 0.7 percent in the first half of the year. Nonetheless, and despite a sharp fall in consumer confidence this month, economists do not believe the economy will fall back into recession.

The Thomson Reuters/University of Michigan consumer sentiment index fell to 55.7 this month from 63.7 in July. It was slightly better than this month’s preliminary reading of 54.9, which had been the lowest level since May 1980.

The weak growth pace has been blamed on high gasoline prices, bad weather and supply-chain disruptions from the March earthquake in Japan, all of which are considered to be temporary drags on the economy.

US stocks rose and Wall Street recorded its first weekly gain in more than a month. Prices of US government debt rose, while the dollar fell against a basket of currencies.

Details of the GDP report were generally encouraging, with consumer spending slightly firmer and businesses accumulating fewer goods than previously thought. Business spending was also more robust than initially believed.

This should improve the economy’s prospects for the third quarter, although a strong pick-up in growth remains remote.

Economists said the economy was in desperate need of both fiscal and monetary stimulus, but none expected much help on either front.

The Fed has injected about US$2.3 trillion into the economy through purchases of government and agency debt since late 2008 and has slashed interest rates to near zero, leaving it with limited ammunition to bolster the economy.

At the same time, there is no appetite in Washington to increase government spending because of a huge budget deficit.

“The economy is on its own,” said Christopher Probyn, chief economist at State Street Global Advisors in Boston. “We are not going to get a marked acceleration in growth.”

Business inventories increased US$40.6 billion instead of US$49.6 billion, cutting 0.23 percentage point from GDP growth during the quarter.

The drag from business inventories was offset by growth in consumer spending, which was revised up to a 0.4 percent rate from 0.1 percent.

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