In the U.S.: U.S. Grew Faster Than First Estimated In Second Quarter

29 August 2012

As markets await Jackson Hole, 2nd quarter results are still unable to defy “slow-growth mode.”

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 followed a 2 percent first-quarter pace and matched the median estimate in a Bloomberg survey. The revised data also showed companies invested in new equipment at the weakest pace in almost three years.

A second straight quarter of slowing 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.

“We are very much struck in a slow-growth mode,” said Mark Vitner, a senior economist at Wells Fargo Securities LLC inCharlotte, North Carolina, who correctly forecast the revision. “We still don’t see the economy breaking free of this 1.5 percent to 2 percent growth rate. A 1.7 percent pace is the personification of the Fed’s frustration.”

Stock-index futures held gains after the report, with the contract on the Standard & Poor’s 500 Index expiring in September climbing 0.2 percent to 1,410 at 8:55 a.m. in New York.

Growth forecasts from the 80 economists surveyed ranged from 1.2 percent to 2.2 percent. The economy expanded 4.1 percent 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, Salaries

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.

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.

Trade Deficit

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.

The U.S. expansion, now in its fourth year, stands in contrast to the euro-area, which shrank in the second quarter after the worsening debt crisis and tougher budget cuts forced at least six nations into recessions. Gross domestic product in the 17-nation currency bloc fell 0.2 percent from the first quarter, when it stagnated, the European Union’s statistics office said Aug. 14.

A U.S. housing market that is on the mend, as sales and prices pick up, also augmented growth. Residential construction advanced at an 8.9 percent pace last quarter compared with an initial estimate of 9.7 percent.

Business Inventories

Inventories, previously reported as contributing 0.32 percentage point to growth, subtracted 0.23 percentage point. Stockpiles were rebuilt at a $49.9 billion annual pace after a rate of $56.9 billion in the first three months of 2012.

Motor vehicle output boosted growth by 0.18 percentage point after contributing 0.72 point from January to March.

Keeping the recovery going at the same speed in the third quarter may prove difficult without faster employment gains as gasoline prices rise and uncertainty over fiscal policy in the U.S. threatens to curtail business investment.

Payroll gains averaged 73,000 in the second quarter, down from 226,000 in the prior three months. While the pace of hiring picked up in July, the unemployment rate rose to 8.3 percent and has exceeded 8 percent for 42 straight months.

Chairman Bernanke

Fed Chairman Bernanke may use an Aug. 31 speech in Jackson Hole, Wyoming, to reaffirm the central bank’s assessment of the expansion. Policy makers at Fed have said they are prepared to provide new stimulus “fairly soon” unless they’re convinced the economy is poised to rebound, according to the minutes of the Federal Open Market Committee’s July 31-Aug. 1 meeting released last week.

Bernanke sees “scope for further action,” he wrote in an Aug. 22 letter to California RepublicanDarrell Issa, chairman of the House Oversight and Government Reform Committee.

Inflation is still near the central bank’s goal of 2 percent. Today’s report showed a measure of prices excluding food and energy costs tied to consumer spending climbed at a 1.8 percent annual pace in the second quarter.

GDP expanded 3.3 percent in the second quarter before adjusting for inflation.

At the same time, monetary authorities won’t be able to prevent the blows to growth the economy could receive at the start of next year from changes in fiscal policy. More than $600 billion in higher taxes and reductions in defense and other government programs next year, dubbed the fiscal cliff, will occur automatically without action by U.S. lawmakers.

Gross domestic income in the second quarter was also released today for the first time. The measure, which shows the money earned by the people, businesses and government agencies whose purchases go into calculating growth, rose at a 0.6 percent annual rate from April through June after a 3.8 percent gain. GDI may be a better gauge of the economy, according to Fed research.


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