The US economy appeared to hold on its path of recovery from deep recession as output shrank at an unrevised 1 percent pace in the second quarter, government data showed on Thursday.
The figure for GDP was better than expected by analysts, who had forecast a revision showing an annualized 1.5 percent pace of decline.
The Commerce Department report reflected an easing of the deep recession that led to a 6.4 percent rate of decline in the first quarter.
PHOTO: EPA
“The small overall decline provides additional confirmation that the recession is winding down and can be expected to end shortly,” said Ed Friedman at Moody’s Economy.com.
Nigel Gault, an economist at IHS Global Insight, said the revised report “showed a favorable change in the mix of GDP” that he said was “good news for third-quarter growth prospects.”
“We had expected GDP growth of around 2 percent in the current quarter; it now looks like it will be 3 percent or better,” Gault said.
The revised GDP data showed a drop of 1 percent in consumer spending, the main driver of economic activity, instead of the prior estimate of a 1.2 percent decline.
Motor vehicle output added 0.2 percentage point to the GDP after subtracting 1.69 percentage points from the first-quarter change as firms ramped up production after deep cuts.
Federal government spending increased 11 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first.
The housing sector remained a drag on the economy, with real residential fixed investment falling 22.8 percent, compared with a decrease of 38.2 percent in the prior quarter.
Exports fell 5 percent while imports decreased 15.1 percent — a phenomenon that contributes to GDP because it means more production is domestic based.
A big drawdown in inventories subtracted from growth, although economists say this opens the way for increased activity because businesses will need to rebuild stockpiles.
The change in inventories subtracted 1.39 percentage points from second-quarter GDP, after taking away 2.36 percentage points in the first quarter.
“Bigger inventory drop paves way for greater output expansion,” said Robert Brusca at FAO Economics.
Real final sales of domestic product — a key reading of economic activity that strips out inventory adjustments — showed a 0.4 percent drop in the second quarter, revised from last month’s estimate of a 0.2 percent decline.
The report also showed gross corporate profits up US$67 billion to US$1.25 trillion.
Joel Naroff at Naroff Economic Advisors said that portion of the report was encouraging.
“The modest decline in growth and strong productivity combined to create a solid gain in earnings and the potential for growing investment in the near future,” he said. “Growing corporate profits are critical if the emerging recovery is to be sustained. The financial sector is concentrating on rebuilding capital, not funding business expansion.”
Richmond Federal Reserve president Jeffrey Lacker said in a speech on Thursday that recent economic data suggest the economy is recovering.
“We’ve endured the worst downturn that the economy has experienced in most of our lifetimes, and conditions remain distressed in many industries and localities,” Lacker said. “Yet the economy appears to have leveled out and I believe we can look forward to better times ahead.”
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