U.S. Economy Grew 1.7% in Second Quarter

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 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.

US Bureau of Economic Analysis 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 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.

U.S. Economy Grew 1.7% in Second Quarter

TradingEconomics.com, Bloomberg
10/2/2010 12:57:47 PM