U.S. Economy’s Contraction Slowed to 1%

The U.S. economy shrank at a better- than forecast 1 percent annual pace in the second quarter as a jump in government spending masked a deeper retrenchment by consumers.

Gross domestic product contracted at a less-than-projected 1 percent annual rate after shrinking 6.4 percent in the prior three months, the most in 27 years, Commerce Department figures showed today in Washington. Revisions showed the economic downturn last year was even deeper than previously estimated.

Profits at companies from Caterpillar Inc. to Dow Chemical Co. signal the slump is abating as government efforts to revive lending and President Barack Obama’s stimulus gain traction. At the same time, today’s report showed that consumer spending, which accounts for 70 percent of the economy, shrank more than twice as much as forecast last quarter; analysts anticipate it will take months to recover as job losses mount.

Government spending rose at a 5.6 percent pace last quarter, the most since 2003. The Obama administration’s $787 billion stimulus program was approved in February, and is intended to buttress the economy through next year.

GDP was down 3.9 percent from the second quarter in 2008, the biggest drop since quarterly records began in 1947. Last quarter’s decline was the fourth in a row, also the longest losing streak on record.

Benchmark revisions showed the world’s largest economy contracted 1.9 percent from the fourth quarter of 2007 to the last three months of 2008, compared with the 0.8 percent drop previously on the books.

The GDP report is the first for the quarter and will be revised in August and September as more information becomes available.

Consumer spending, which accounts for more than two-thirds of the economy, fell at a 1.2 percent pace following a 0.6 percent increase in the prior quarter. Purchases were forecast to drop 0.5 percent, according to the survey median.

The economy has lost 6.5 million jobs since the recession began in December 2007, and economists surveyed by Bloomberg this month forecast the jobless rate will exceed 10 percent by early 2010.

The trade gap shrank last quarter, preventing a steeper decline. The gap between exports and imports fell to $339.3 billion at an annual pace from $386.5 billion.

Inventories dropped at a record $141.1 billion annual pace, after a $113.9 billion decline. Leaner stockpiles set the stage for recovery in production.

U.S. Economy’s Contraction Slowed to 1%

TradingEconomics.com, Bloomberg
7/31/2009 9:25:37 AM