I'll probably get a flurry of e mails from Las Vegas Greg about this.... he thinks there is some liberal media collusion going on that takes great delight in revealing real/imagined bad economic news to discredit the prez, and insists that "liberalism is a mental illness." Hmmmmmm.... anyway:
Economy slows as energy costs rise
Consumer spending dips
By Robert Gavin, Globe Staff | July 31, 2004
The US economy slowed dramatically in the past three months as consumers, battered by higher energy prices, sharply curtailed their spending.
As measured by gross domestic product, or the nation's output of goods and services, the economy grew in the second quarter at its slowest pace in a year, advancing at a 3 percent annual rate from April to June, compared to 4.5 percent in the previous three months, the Commerce Department reported yesterday. Consumer spending slowed even more dramatically, growing at an anemic 1 percent annual rate, compared to 4.1 percent in the first quarter.
The state's economy also weakened in the second quarter, the University of Massachusetts reported yesterday. With rising gasoline prices, interest rates, and inflation also taking their toll on consumers, the state's economic growth slipped to an annual rate of 1.8 percent, from 2.1 percent.
The economy's disappointing performance provided more ammunition for Massachusetts Senator John F. Kerry as the newly anointed Democratic presidential nominee launched a post-convention campaign swing. Jason Furman, a Kerry economic adviser, noted that yesterday's report on economic growth follows other recent government data showing that job creation slowed and wages slipped in June.
"This is more evidence that this is not the strongest economy, and Bush's economic policies are not working," Furman said.
The White House, however, said the Commerce report was more evidence that the economy is advancing at a sure and steady pace that has boosted confidence, kept the housing market surging, and produced 10 consecutive months of job growth. The administration also said yesterday that it expected the strengthening economy to boost tax collections so it lowered its deficit forecast for the current year to $445 billion -- still a record -- from an earlier $521 billion estimate.
"We're on a positive track, and the fundamentals are solid for the future," Treasury Secretary John Snow said in a statement.
Oil prices, which this week spiked to record highs on world markets, pose the biggest threat to recovery, economists said. If gasoline and energy prices stay high, economists said, it will hurt consumer spending, which accounts for about two-thirds of the nation's economic activity. Oil closed yesterday at $43.80 a barrel on the New York Mercantile Exchange, up 35 percent since the beginning of the year.
Consumer spending, which kept the economy afloat over the past few years, has lost steam recently because wages are growing more slowly than inflation and the impact of the Bush tax cuts is waning, said Sung Won Sohn, chief economist at Wells Fargo Banks in Minneapolis. "Rising oil prices are one of the biggest concerns I have," Sohn said. "It's like a tax, and that will hurt consumers and the economy in general."
Other economists said that the second-quarter slowdown appears to be a pause, and many expect consumer spending and the broader economy to rebound over the next few months. In turn, they also expect the Federal Reserve to maintain its course of gradual interest-rate increases to prevent the economy from growing too quickly and sparking runaway inflation.
The Fed last month boosted its key short-term rate by a quarter point, its first increase in more than four years. Most economists expect another quarter-point boost when Fed policy makers meet in August, meaning higher short-term borrowing costs, such as credit-card rates, and bigger returns on savings.
Recently released economic data indicate the economy has begun to bounce back in July after hitting a soft patch in June. Regional indexes that track manufacturing show that business activity accelerated in July after weakening in June. Consumer confidence, considered a harbinger of spending, is also rising.
Yesterday, the University of Michigan reported that its index of consumer sentiment rose to its second highest level of the past two years. Earlier this week, the Conference Board, a nonprofit research group, said its consumer confidence index hit a two-year high.
In addition, economists said, other sectors experienced solid growth in the last quarter. Business spending accelerated sharply, growing at an annual rate of nearly 9 percent, compared to about 4 percent in the previous quarter. Housing investment more than tripled to a 15 percent annual rate. Exports grew at a 13 percent annual rate, nearly double the pace of the first quarter.
Massachusetts also appears to be making the transition, said Alan Clayton-Matthews, a professor of public policy at the University of Massachusetts at Boston. The state, he said, is beginning to see job growth in sectors that drive its economy, including information technology, research and development, and professional and business services.
"The economy seems to be restructuring itself for expansion," Clayton-Matthews said. "It may take the rest of the year, but the dynamic part of our economy is rebounding." |
