Economy Loses Steam in the Second Quarter"
>>It's much weaker than expected, and the downward revision to growth suggests the recession was a little deeper than first estimated," said economist Sal Guatieri of Bank of Montreal/Harris Bank in Toronto.<<
Wed Jul 31, 9:23 AM ET
By Glenn Somerville
WASHINGTON (Reuters) - U.S. economic growth faltered sharply during the second quarter and began the year at a slower pace than previously thought, the government said on Wednesday in a report that also confirmed a prolonged economic downturn last year.
The Commerce Department ( news - web sites) said gross domestic product, or GDP ( news - web sites), advanced at a listless 1.1 percent seasonally adjusted annual rate during the April-June second quarter -- half the 2.2 percent pace estimated by Wall Street economists.
That followed a revised first-quarter growth rate of 5 percent, which had been previously reported as a more robust 6.1 percent gain.
Analysts said the report showed significantly greater weakness than they had expected but the remained optimistic the economy will escape a "double-dip" recession and that the Federal Reserve ( news - web sites) will not rush to push U.S. interest rates up.
"The odds of a double-dip recession are no more than one in four and the Federal Reserve's next (move) should be to raise interest rates, but probably not before March 2003," economist Mark Vitner of Wachovia Securities in Charlotte, N.C. said.
Commerce revised its GDP data back to the start of 1999, revealing that national economic output contracted for three straight quarters during the first nine months of 2001, handily surpassing a rule-of-thumb definition that two quarters or more of declining output is a recession.
SCANDALS TAKE TOLL
With a tumble in stock prices and a surge in accounting scandals during the spring quarter, consumer spending that fuels two-thirds of national economic activity grew at a much slower 1.9 percent annual rate after increasing at a 3.1 percent pace during the first quarter.
Companies added to their stocks of unsold goods for the first time since the fourth quarter of 2000, building inventories at a rate of $1 billion in the second quarter after selling them down by $28.9 billion in the first three months of the year.
The dollar slipped on foreign-exchange markets after the GDP report, apparently on concerns that financial market prospects in America might suffer in investors' eyes. Treasury bond prices initially rose but softened later.
Analysts aid the revisions to last year's GDP plus the soft second-quarter performance this year added up to a less vigorous economic recovery that will require careful handling.
"It's much weaker than expected, and the downward revision to growth suggests the recession was a little deeper than first estimated," said economist Sal Guatieri of Bank of Montreal/Harris Bank in Toronto.
"The Fed is definitely going to be on hold for some time to come," he added.
The Fed's policysetting Federal Open Market Committee ( news - web sites) next meets to plot interest-rate strategy on Aug. 13.
Previously the government had reported that GDP shrank for only one three-month period, during the third quarter last year, which led Bush administration officials to dispute whether the economy had slipped into its first recession in a decade.
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