Tags: Economy | Expanded | Second | Quarter

Economy Expanded at 1.7 Percent Rate in Second Quarter

Thursday, 30 Sep 2010 08:45 AM

The U.S. economy grew at a 1.7 percent annual rate in the second quarter, marking the start of a slowdown in growth that has concerned the Federal Reserve.

The revised increase in gross domestic product was more than the median forecast of economists surveyed by Bloomberg News and compares with a 1.6 percent estimate issued last month, figures from the Commerce Department showed today in Washington. The world’s largest economy grew 3.7 percent in the first three months of the year and 5 percent at the end of 2009.

Economists surveyed this month projected little pickup in growth for the rest of the year as a jobless rate hovering close to 10 percent hobbles consumer spending and housing languishes around record lows. Stocks and Treasury securities have rallied since Fed policy makers said Sept. 21 that they were prepared to do more to spur the economy and prevent prices from falling.

“The soft patch in the second quarter was pretty severe,” John Herrmann, senior fixed-income strategist at State Street Global Markets LLC in Boston, said before the report. “Unemployment will stay pretty close to where it is now as we’re moving at a slower pace of growth than we’d like to see. This is an economy that’s still healing and needs ongoing nurturing by the government and the Fed.”

Stock-index futures rose, erasing earlier losses, after a separate report showed first-time filings for jobless benefits declined. Futures on the Standard & Poor’s 500 Index expiring in December gained 0.3 percent to 1,143.90 at 8:36 a.m. in New York.

Jobless Claims

Initial jobless claims dropped by 16,000 to 453,000 last week, lower than the median forecast in a Bloomberg survey, Labor Department figures showed today.

GDP was forecast to grow at a 1.6 percent annual pace, according to the median estimate of 81 economists surveyed by Bloomberg. Projections ranged from gains of 1.3 percent to 2.2 percent. Today’s report is the third for the quarter.

The final revision to second-quarter growth reflected bigger gains in consumer spending and inventories.

The economy is among the top concerns for voters in the November congressional elections, and polls show the public is increasingly skeptical of President Barack Obama’s performance. His administration is pushing a proposal that would extend middle-income tax cuts while letting the top rates rise in order to mitigate the effect on the budget deficit.

Growth Forecast

Growth will average 2.1 percent from July through December, according to the median forecast of economists in a Bloomberg survey from Sept. 1 to Sept. 8, down from their projections a month earlier. Analysts also cut estimates for next year, predicting consumer spending will cool and unemployment will hold above 9 percent.

There’s a 20 percent chance the economy will slide into another recession, according to the median estimate the economists surveyed.

“We continue to see what we believe to be a slow-growth economy, but still a growth economy,” Charles “Wick” Moorman, chief executive of Norfolk Southern Corp., the second-largest U.S. railroad by market capitalization, said in a Bloomberg Television interview yesterday. “We saw a fairly sharp snap-back as 2009 went on and early in 2010. That seems now to have slowed.”

The S&P 500 fell 0.3 percent yesterday to close at 1,144.73, trimming the gauge’s biggest September rally since 1939. The two- year Treasury note reached a record-low yield of 0.41 percent on Sept. 22.

Jobs Lost

The loss of 8.4 million jobs caused by the recession, which ended in June 2009, has taken a toll on consumer confidence and spending. The housing market is yet to show sustained growth in the absence of a government tax credit for buyers.

At the same time, corporate profit gains indicate business investment, which has been the mainstay for manufacturing and the recovery, will keep growing, albeit at a slower pace.

Sluggish growth and low inflation are among the reasons economists in the Bloomberg monthly survey pushed back the timing of the Fed’s first rate increase to the fourth quarter of 2011 from the prior three months.

“The pace of recovery in output and employment has slowed in recent months,” Fed policy makers said in their statement on Sept. 21, when they kept the benchmark interest rate near zero. “Household spending is increasing gradually, but remains constrained by high unemployment, modest income growth, lower housing wealth, and tight credit.”

Consumer Spending

Today’s report showed consumer spending, which accounts for about 70 percent of the economy, rose at a 2.2 percent pace last quarter, the fastest since the first three months of 2007 and more than the 2 percent the government estimated last month. Spending added 1.54 percentage points to GDP in the second quarter.

Household spending figures for August, due tomorrow, may show a 0.3 percent gain following a 0.4 percent increase in July, according to the Bloomberg survey median

Today’s report showed the trade gap was revised to $449 billion from $445 billion, as imports climbed more than previously estimated. The deficit subtracted 3.5 percentage points from growth, the biggest reduction since record-keeping began in 1947.

A bigger gain in inventories contributed 0.82 percentage points to second-quarter growth, more than the government estimated last month.

The need to restock depleted inventories, a major driver of the economic recovery, will diminish in coming months as companies try to keep stockpiles more in line with demand.

Corporate Profits

Corporate profits increased 3 percent, the smallest gain since a decrease in the final three months of 2008, today’s report showed. They were up 10.5 percent in the first quarter. Earnings rose 37 percent from the second quarter of 2009, indicating companies have the means to lift spending on new equipment and payrolls.

Business spending on new equipment and software rose at a 24.8 percent pace last quarter, the most since 1983. Spending on structures including office buildings and factories declined 0.5 percent, previously reported as a 0.4 percent increase.

The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, climbed at a 1 percent annual pace. Policy makers, in their statement last week, also said that inflation is “somewhat below” levels consistent with the central bank’s congressional mandate for stable prices.

© Copyright 2017 Bloomberg News. All rights reserved.

 
1Like our page
2Share
Economy
The U.S. economy grew at a 1.7 percent annual rate in the second quarter, marking the start of a slowdown in growth that has concerned the Federal Reserve. The revised increase in gross domestic product was more than the median forecast of economists surveyed by Bloomberg...
Economy,Expanded,Second,Quarter
1030
2010-45-30
Thursday, 30 Sep 2010 08:45 AM
Newsmax Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved