B: Economy grows at 3.1 percent rate in second quarter, better th
n first estimated
B: Economy grows at 3.1 percent rate in second quarter, better than first estima
ed
WASHINGTON, Aug 28, 2003 (AP WorldStream via COMTEX) -- The U.S. economy
emerged from the doldrums in the second quarter of this year and grew at a solid
3.1 percent annual rate, a better performance than the government thought just a
month ago.
The revised reading on gross domestic product released by the Commerce
Department Thursday showed the economy picking up more speed in the April to
June quarter than the 2.4 percent growth rate first estimated.
The 0.7 percentage-point improvement to GDP reflected more military spending for
the Iraq war and more robust spending by consumers and businesses. The revised
second quarter reading was stronger than the 2.9 percent growth rate economists
were expecting and marked the economy's best performance since the third quarter
of 2002.
The rebound came after two straight quarters of anemic economic growth. GDP,
which measures the value of all goods and services produced within the United
States, increased at just a 1.4 percent pace in the final quarter of 2002 and
the first three months of this year.
In a second report, new claims for unemployment benefits rose by a seasonally
adjusted 3,000 to 394,000 last week, the Labor Department said. Even with the
increase, claims remained below 400,000, a level associated with a weak job
market. That offered hope that the pace of layoffs is stabilizing.
Amid signs of an economic rebound, the Federal Reserve earlier this month
decided to hold a key short-term interest rate at a 45-year low of 1 percent and
hinted that the rate may stay at this low level for some time.
Economists are predicting that the economy will pick up speed in the second half
of this year, with some estimating that growth will clock in at an annual rate
of 3.5 percent or more.
Near rock-bottom short-term borrowing costs along with fatter paychecks and
other incentives coming from President George W. Bush's third tax cut should
motivate consumers and businesses to spend and invest more, thus boosting
economic growth.
Even if the economy perks up in the second half, the job market probably will
remain sluggish for a while, economists say. The nation's unemployment rate
dipped to 6.2 percent in July, but that was mainly because a lot of people left
the civilian labor force. Businesses cut jobs for the sixth month in a row.
Economists say businesses will want profits to improve and want to feel secure
about the economic rebound before they go on a hiring spree.
After-tax profits of U.S. corporations fell by 3.4 percent in the second
quarter, compared with a 3.8 percent increase in the first quarter, the GDP
report said.
The Bush administration insists the tax cuts will help the economy grow and
eventually create jobs. Democrats say the tax cuts aren't putting people back to
work, mainly help the wealthy and dig the federal budget hole deeper.
In the second quarter, surging military spending was a major factor in the
strong GDP showing. Spending by the federal government on national defense
increased at a whopping 45.9 percent rate, the largest increase since the third
quarter 1951. The new estimate was stronger than the 44.1 percent growth rate
for such spending reported a month ago.
Consumer spending grew at a 3.8 percent pace in the second quarter, up from a
3.3 percent growth rate previously estimated. Much of that pickup reflected more
brisk spending on big-ticket goods, such as cars and appliances. Consumer
spending on such "durable" goods grew at sizable 24.1 percent rate, the biggest
increase since the end of 2001.
Consumer spending has been the main force keeping the economy going.
Thursday's report offered signs that businesses, whose reluctance to spend in
previous quarters was a main factor in the economy's listlessness, may be coming
around.
Businesses increased spending in the second quarter on equipment and software at
an 8.2 percent pace, up from the 7.5 percent growth rate previously reported,
and a turnaround from the cut in such spending made during the first quarter of
this year.
And, after six straight quarters of cutting spending on plants and other
structures, businesses increased such investment in the second quarter at a 7.1
percent rate, also stronger than the 4.8 percent growth rate first estimated for
the quarter.
The nation's trade deficit also was less of a drag on second-quarter GDP than
the government previously thought. The trade deficit shaved off 1.20 percentage
point from GDP, versus the 1.56 percentage point reduction first estimated.
By JEANNINE AVERSA
Associated Press Writer
Copyright 2003 Associated Press, All rights reserved
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KEYWORD: WASHINGTON
Eds: Combines urgent series; INSERTS jobless claims in 5th graf
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