US Q2 GDP eased to 2.4%, signalling slowing recovery

30 July 2010 14:40  [Source: ICIS news]

WASHINGTON (ICIS)--US gross domestic production (GDP) grew at an annualised rate of 2.4% in the second quarter, the Commerce Department said on Friday, marking a decline from first quarter growth of 3.7% and indicating that the nation’s economic recovery is slowing.

Economists and other analysts had anticipated that the second quarter GDP would edge downward to 2.6% or 2.5%, but the actual rate estimate by the department came in a bit lower.

The department said that “the deceleration in real GDP in the second quarter primarily reflected acceleration in imports and a deceleration in private inventory investment”.

Imports are a subtraction in the calculation of GDP.

The increase in imports and the decline in inventory investment were in part offset by an upturn in what the department calls residential fixed investment, meaning housing construction and repairs.

That advance in home construction was driven in April by the impending expiration of a federal tax credit of $8,000 (€6,080) made available to home buyers. Since the expiration of that incentive, US new home construction and overall residential sales have fallen sharply.

Also contributing to the second quarter GDP improvement were personal consumption spending and outlays by federal, state and local governments, the department said.

Further evidence of a slowing recovery was seen in the pace of consumer spending in the second quarter, which rose 1.6% but was lower than the first quarter’s rate increase of 1.9%, the department added.

In addition, sales of durable goods - items built to last at least three years or longer, such as refrigerators, washing machines and clothes dryers - increased in the second quarter by 7.5%, but slower than the 8.8% growth seen in the first three months of this year.

The fall-off was more pronounced in non-durable goods, which grew at a 1.6% pace in the second quarter compared with the 4.2% rate of growth reported for the first quarter. This suggests that consumers were again easing back on discretionary spending during the three-month period ended 30 June.

According to the department’s data, the US economy began to pull out of its recession in the third quarter last year, rising 2.2% compared with the 0.7% decline seen in the second quarter 2009 and the first quarter’s sharp negative growth of 6.4%.

The recovery accelerated in the fourth quarter of last year, reaching a GDP growth rate of 5.6%, but then cooled to the 3.7% gain seen in the first quarter of 2010.

The department’s report of easing GDP growth in the second quarter comes amid other indicators that the recovery is slowing.

Earlier this week the Commerce Department reported that sales of durable goods fell in June by 1% from May’s level.

Among other worrisome signs that the US economic recovery is slowing, US leading economic indicators have edged lower, retail sales are down, the housing sector remains near record lows, and Fed Chairman Ben Bernanke and the top White House economist have indicated that the recovery is wobbly.

($1 = €0.76)

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