By Bob Willis - Aug 27, 2010 4:03 PM GMT+0300
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The U.S. economy grew at a 1.6 percent annual rate in the second quarter, less than previously calculated, as companies reined in inventories and the trade deficit widened.
The revised increase in gross domestic product was bigger than the median forecast of economists surveyed by Bloomberg News and compares with a 2.4 percent estimate issued last month, figures from the Commerce Department showed today in Washington. Corporate profits grew last quarter at the slowest rate in a year and employee wages in the prior three months were revised lower.
Federal Reserve Chairman Ben S. Bernanke, who addresses central bankers from around the world today in Jackson Hole, Wyoming, may shed more light on policy makers’ outlook in the wake of reports that signaled a growing risk of a renewed U.S economic slump. Slowdowns in housing, business investment and consumer spending are prompting economists to cut second-half growth forecasts.
“The economy has slowed a bit and will probably continue to slow through the second half,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. “We’re skating on thin ice, and we don’t have a lot of margin for error.”
Stock-index futures rose and Treasury securities fell after the report. Futures on the Standard & Poor’s 500 Index gained 0.7 percent to 1,051.8 at 9:02 a.m. in New York. The yield on the 10- year Treasury note rose to 2.54 percent from 2.48 percent late yesterday.
Economists’ Forecasts
Economists projected a 1.4 percent rate of growth in the second quarter, according to the median estimate in the Bloomberg survey in which estimates ranged from 0.5 percent to 2.2 percent. The economy grew at a 3.7 percent pace in the first quarter. Today’s GDP estimate is the second for the quarter, with the final figures set for release on Sept. 30.
Today’s report showed consumer spending, which accounts for about 70 percent of the economy, rose at a 2 percent annual rate in the second quarter compared with a previously reported 1.6 percent pace. The revision reflected revised electricity and natural gas usage data, the Commerce Department said.
Purchases increased at a 1.9 percent rate from January through March.
A lack of job growth, declines in household wealth following slumps in stocks and housing, and the drive to reduce debt and boost savings are reasons consumer spending may struggle to strengthen.
Wages and Salaries
Wages and salaries increased by a revised $6.5 billion in the first three months of 2010 from the fourth quarter, compared with $18.8 billion initially reported. The figures incorporate new, more comprehensive data from the Labor Department and show why consumer spending will be hard-pressed to accelerate in coming months.
Figures this week showing a further slide in home sales and a drop in business spending on equipment prompted economists such as Joseph LaVorgna of Deutsche Bank Securities Inc. to reduce third-quarter growth estimates.
Mark Zandi, chief economist at Moody’s Analytics Inc. this week said the likelihood of the economy slipping back into a recession is now 33 percent, up from a 20 percent chance 12 weeks ago. New York University economist and forecaster Nouriel Roubini, who predicted the financial crisis, said the odds of a return to recession at 40 percent.
The economy is a top issue for voters in the November congressional elections and polls show the public is increasingly skeptical of President Barack Obama’s performance. Public approval for the president’s handling of the economy was at 41 percent in an Aug. 11-16 Associated Press-GfK survey, an all-time low and down from 50 percent last July.
Jump in Imports
The trade gap in the second quarter widened to $445 billion, compared with an initial estimate of $425.9 billion, subtracting 3.37 percentage points from growth, the biggest reduction since record-keeping began in 1947, today’s report showed. Imports grew at a 32.4 percent pace, the most since 1984.
Slower inventory accumulation contributed 0.63 percentage points to second-quarter growth. The Commerce Department said in its initial report that stockpiles added 1.05 percentage points to growth after adding 2.64 percentage points in the first three months.
Today’s report also showed gross domestic income, or the money earned by the people, businesses and government agencies whose purchases go into calculating growth, rose at a 2.3 percent annual rate from April through June.
Nominal GDP
By comparison, GDP expanded 3.6 percent from April through June before adjusting for inflation. According to Fed research, GDI is a better gauge of the economy.
Revisions to first-quarter income showed a gain of 4.1 percent, compared with a 5.6 percent pace initially reported. GDP before adjusting for changes in prices rose at a 4.8 percent pace from January through March.
While the income and GDP should theoretically match, the different methods used in calculating the numbers cause them to sometimes diverge.
J. Crew Group Inc., the New York-based retailer of sportswear, casual and career clothing, yesterday lowered its full-year earnings forecast.
‘Uncertainty’
“The continued economic uncertainty we’re seeing is leading us to take a more conservative outlook for the second half of the year,” Mickey Drexler, the retailer’s chief executive officer, said on a conference call.
Corporate profits rose 4.6 percent in the second quarter, the smallest gain since the same three months last year, after an 10.5 percent increase in the first three months of the year, today’s report showed. Earnings were up 39 percent from the same time last year. The increase indicates companies have the wherewithal to boost spending on new equipment and add to payrolls.
Business spending on new equipment and software advanced at a 24.9 percent pace last quarter, the most since 1983, more than the prior estimate of 22 percent. Spending on structures, including office buildings and factories, rose at a 0.4 percent in the second quarter.
The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 1.1 percent annual pace. The reading underscores the Fed’s pledge to keep interest rates near zero in coming months.
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