Economic Indicators

Economy in U.S. grew more in 2Q than first estimated

ECONOMY ON EDGE: " The U.S. economy is on edge," Bricklin Dwyer, an economist at BNP Paribas in New York, said before a report showing the U.S. economy is having trouble making headway as consumers stay frugal.
Posted 8/29/12

WASHINGTON - The U.S. economy expanded more than previously estimated in the second quarter, reflecting an improvement in the trade deficit and a pickup in household spending on utilities.

Gross domestic product climbed at a 1.7 percent annual rate from April through June, up from an initial estimate of 1.5 percent, revised Commerce Department figures showed today in Washington. The figure matched the median estimate in a Bloomberg survey. The revised data showed companies invested in new equipment at the slowest pace in almost three years.

A second straight quarter of slower growth shows the world’s largest economy is having difficulty making headway as consumers stay frugal and looming tax changes prompt companies to limit investment and hiring. Chairman Ben S. Bernanke this week may reaffirm the view of many Federal Reserve policy makers that more stimulus will be needed unless the expansion shows signs of strengthening.

“The U.S. economy is on edge,” Bricklin Dwyer, an economist at BNP Paribas in New York, said before the report. “Certainly we’re not seeing strength in terms of underlying momentum, but we’re not seeing sustained weakness either. We’re just in a wait-and-see mode, trying to see whether the Fed is going to provide more stimulus, gas to the economy.”

Growth forecasts from the 80 economists surveyed ranged from 1.2 percent to 2.2 percent. The economy expanded at a 2 percent rate in the prior three months after a 4.1 percent gain in the fourth quarter.

Consumer spending

Consumer spending, about 70 percent of the economy, climbed at a 1.7 percent annual rate, the weakest in a year and revised from a 1.5 percent initial estimate. Purchases added 1.2 percentage points to growth.

The revision reflected the biggest gain in spending on services since the fourth quarter of 2006. The largest contributor came from more spending on electricity and gas as temperatures across the country approached record highs.

At the same time, consumers’ purchasing power eased, with disposable income adjusted for inflation rising 3.1 percent from April through June after a 3.7 percent gain in the first quarter. The saving rate in that period climbed to 4 percent from 3.6 percent in January through March.

Wages and salaries in the second quarter rose by $56.1 billion, less than the $56.4 billion initially reported. That compares with a revised $133.5 billion first-quarter gain that was bigger than the previous estimate of $123.3 billion.

‘Not rip-roaring’

The U.S. economy is “not rip-roaring, but it’s certainly not on its heels,” Dave Barger, president and chief executive officer of JetBlue Airways Corp., told Bloomberg News on Aug. 20. “We’re nowhere close to a recession,” he said. Growth may be “north of 2 percent” in the U.S. next year, Barger said.

On the business side, today’s report offered a first look at corporate profits. Before-tax earnings rose at a 0.5 percent rate, after falling 2.7 percent in the prior period. They climbed 6.1 percent from the same time last year.

Investment by businesses slowed last quarter. Corporate spending on equipment and software rose at a 4.7 percent pace, the weakest since the third quarter of 2009. The second-quarter pace was less than the previously estimated 7.2 percent rate and compared with a 5.4 percent increase in the previous quarter.

International trade held up in the second quarter, indicating weaker global growth had yet to slow demand for goods produced in the U.S. Net exports, which initially subtracted from growth, contributed 0.32 percentage points to GDP, the revision showed.

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