US economic growth faltered sharply during the second quarter and began the year at a slower pace than previously thought, the government said yesterday in a report that also confirmed a prolonged economic downturn last year.
The Commerce Department said GDP advanced at a 1.1 percent seasonally adjusted annual rate during the second quarter -- half the 2.2 percent rate estimated by Wall Street economists. That followed a revised 5 percent rate of increase in the first quarter that previously was reported as a more robust 6.1 percent gain.
As stock prices tumbled and accounting scandals multiplied during the spring quarter, consumer spending that fuels two-thirds of national economic activity grew at a much slower 1.9 percent annual rate after increasing at a 3.1 percent pace during the first quarter. Companies added to their stocks of unsold goods for the first time since the fourth quarter of 2000, building inventories at a rate of US$1 billion in the second quarter after selling them down by US$28.9 billion in the first three months of the year.
Commerce revised its GDP data back to the start of 1999, revealing that national economic output contracted for three straight quarters during the first nine months of last year, handily surpassing a rule-of-thumb definition that two quarters or more of declining output is a recession.
Previously the government had reported that GDP shrank for only one three-month period, during the third quarter last year, which led George W. Bush administration officials to dispute whether the economy had slipped into its first recession in a decade.
Analysts said the report showed significantly greater weakness than they had expected but the remained optimistic the economy will escape a "double-dip" recession and that the Federal Reserve will not rush to push US interest rates up.
"The odds of a double-dip recession are no more than one in four and the Federal Reserve's next [move] should be to raise interest rates, but probably not before March 2003," economist Mark Vitner of Wachovia Securities said.
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