US Growth Slows, Underscoring Recovery Concerns
By LUCA DI LEO AND DARRELL A. HUGHES
Of DOW JONES NEWSWIRES
WASHINGTON -- The U.S. economy slowed in the second quarter and the government said the recession was deeper than earlier believed, adding to concerns over the recovery's strength.
The Commerce Department Friday said gross domestic product, or the value of all goods and services produced, rose at an annualized seasonally adjusted rate of 2.4% in April through June. In its first estimate of the economy's benchmark indicator, the government report showed growth was lifted by business investments and exports while consumer spending, a big engine for the U.S. economy, made a smaller contribution to growth.
First-quarter growth was revised to 3.7% from an original 2.7% increase, but growth estimates back to the start of 2007 were revised lower.
Economists polled by Dow Jones Newswires were expecting second-quarter GDP to rise by 2.5%.
U.S. stocks tumbled on the GDP data but retraced those losses after other economic data Friday came in better than expected. The closely watched survey of Chicago area purchasing managers suggested the pace of U.S. business activity accelerated in July and signaled the nation's economy isn't headed to a double-dip recession. The Institute for Supply Management-Chicago said its Chicago Business Barometer jumped to 62.3 in July from 59.1 in June and 59.7 in May. Economists surveyed by Dow Jones Newswires forecast a July reading of 56.0.
The manufacturing sector has been leading the economic recovery. The GDP data Friday showed business spending on equipment and software surged again in the second quarter, rising by 21.9% after a 20.4% climb in the first three months of the year. The figures highlight the contrast in the economy between high company profits and a limp job market that's curtailing consumer spending.
A separate report, the Reuters/University of Michigan consumer sentiment index, had a final reading for July of 67.8, up from a preliminary reading of 66.5. Economists surveyed by Dow Jones Newswires had expected the final July index to increase to 67.2.
Still, the reading was way down from the final-June mark of 76.0.
"The economy has lost some steam during the second quarter," said Sung Won Sohn, an economist who teaches at California State University. "The slowdown in consumer spending, which accounts for 70% of the economy, is worrisome. The poor job picture is the Achilles' heel of the economy."
Separately, a new Labor Department report Friday also pointed to the weak economy, with U.S. wages and salaries rising just 0.5% in the second quarter, which met analysts' expectations. High unemployment curbed workers' abilities to push for larger pay packages.
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