US Q2 GDP falls to 1.5% as consumers and producers pull back

27 July 2012 14:26  [Source: ICIS news]

WASHINGTON (ICIS)--US GDP growth fell further in the second quarter, the Commerce Department said on Friday, declining to 1.5% on an annualised basis compared with the first quarter’s already weak 1.9% expansion.

In normal economic times, the US economy would be expected to have annual GDP growth of 3% to 3.5%.

US post-recession GDP growth did reach 3% in the fourth quarter of last year, but it has now declined for two consecutive quarters, and both business economists and central bank analysts expect the economy to fall further in the second half of this year.

In its first report on the nation’s second quarter economic performance, the department said that the deceleration in GDP primarily reflected a downturn in consumer spending – what the department calls personal consumption expenditures (PCE) – and decelerations in both residential and business construction and in manufacturing.

The department said that consumer spending grew at only 1.5% in the second quarter, down from the 2.4% pace of PCE in the first three months of the year.

The downshift was more dramatic in sales of durable goods in the second quarter, with output in that key segment of American manufacturing falling by 1% in the second quarter compared with a strong 11.5% growth rate in the first quarter.

Although residential fixed investment – meaning housing construction – grew at 9.7% in the April-June period, home building had seen a robust 20.5% spurt in the first quarter.

Growth in US exports of goods and services helped keep the second quarter GDP pace from falling below 1.5%, gaining at 5.3% in the quarter compared with the 4.4% expansion of export trade in the January-March period.

But that improvement in exports was largely offset by a much stronger increase in imports, which grew at 6% in the second quarter, almost double the 3.1% pace seen in the first quarter.  Imports count as a negative against GDP.

The second quarter deceleration to 1.5% growth was widely expected, having been foreshadowed in recent months by a three-month decline in consumer spending and the first negative growth in manufacturing since the end of the recession in June 2009.

In addition, Federal Reserve Board chairman Ben Bernanke recently warned that the US economy could dip into a new recession in early 2013.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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