Where is the Recession?
U.S. Economy Grew at 5.6% Rate in 2nd Qtr, Revised From 5.3%
By Siobhan Hughes
Washington, Sept. 28 (Bloomberg) -- The U.S. economy grew faster in the second quarter than previously estimated without causing inflation to pick up, government figures showed.
Gross domestic product, the sum of all goods and services produced in the U.S., grew at a 5.6 percent annual rate in the second three months of this year, the Commerce Department said in its final estimate. The economy grew at a 4.8 percent pace in the first quarter.
Even with the increase in GDP and a stronger rate of growth in consumer spending than first thought, inflation was tamer than previously calculated. That could keep Federal Reserve policy- makers from further increasing interest rates at their meeting next Tuesday.
``The U.S. economy's growth is still very strong,'' said Michael Burt, an economist at Economy.com in West Chester, Pennsylvania, before the report. Still, ``most policy-makers including the Fed have upgraded their assessment of how quickly the economy can grow without sparking inflation.''
Revisions in the U.S. balance of trade accounted for most of the change in the GDP report. Exports rose at a 14.3 percent rate in the second quarter, compared with a previously reported 13.5 percent. Imports grew at an 18.6 percent annual rate, compared with a previously reported 19.5 percent.
As a result, net exports, which include the effect of imports, subtracted 1 percentage point from GDP, last reported as deducting 1.2 percentage points from output.
Tame Inflation
Analysts had expected no revision to the government's previous estimate that second-quarter GDP grew at a 5.3 percent annual pace.
Central bankers have raised interest rates six times since June 1999 to cool growth, which could trigger inflation if it occurs to quickly. Today's report showed inflation stayed under control. The GDP deflator, a broad measure of inflation tied to the report, rose at a 2.4 percent annual rate in the second quarter, previously estimated as a 2.6 percent rate.
The personal consumption expenditures price index, a measure of inflation watched by Fed policy-makers and tied to spending, rose at a 2.1 percent annual pace, compared with a 2.3 percent rate in the prior estimate.
Consumer spending, which accounts for two-thirds of gross domestic product, grew at a 3.1 percent annual rate in the second quarter. While up from the 2.9 percent rate previously reported, it is still the slowest pace in three years. It is also less than half the first quarter's 7.6 percent rate that was the fastest in 17 years.
Economists expect that economic growth slowed in the third quarter, which ends this week. The median forecast from a Bloomberg survey of 33 analysts calls for GDP to expand at a 3.1 percent rate in the months from July through September. The first report on third-quarter GDP will be issued Oct. 27.
``It's only a matter of time before we reach a growth rate somewhere between 3 percent and 4 percent that we think the Fed would consider to be sustainable,'' said Paul Christopher, an economist at A.G. Edwards & Sons in St. Louis, before the report.
Corporate Profits
After-tax corporate profits rose at a 2.5 percent rate in the second quarter, originally reported as 2.4 percent. In the first quarter, after-tax profits rose at 5.7 percent.
Profits could be leaner. Eastman Kodak Co., the world's biggest photography company, and DuPont Co., the world's largest chemical maker, were among companies to warn that earnings will grow less than expected in the third quarter and possibly beyond as sales gains fail to offset increases in raw material costs.
Non-residential investment, which includes commercial construction and business equipment and software, rose at a 14.6 percent annual rate, unchanged from the previous estimate. Investment had grown at a 21 percent rate in the first quarter.
Inventory Growth
Business inventories rose less than previously reported. Stockpiles rose $78.6 billion at an annual rate in the second quarter, previously estimated as a $79.3 billion pace of increase
Government spending increased at a revised 4.8 percent annual pace in the second quarter, compared with a previously reported 4.9 percent.
Real final sales -- which exclude inventories -- grew at a 3.9 percent annual rate in the second three months of the year, last estimated as a 3.5 percent annual rate of increase.
Adjusted for inflation, GDP totaled $9.32 trillion in the second quarter when measured at an annual rate. That compares with $9.19 trillion in the first quarter.
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