Economy’s latest decline could be promising
Quarterly GDP shrinkage was just 1 percent
WASHINGTON - Further evidence the recession is ending came in a report yesterday confirming that the economy shrank at an annual rate of just 1 percent in the spring.
Many analysts say growth probably returned in the current quarter. Smaller declines in consumer spending and other areas during the April-June period led some economists to raise their forecasts for the July-September quarter.
But with claims for unemployment aid stubbornly high, Americans may benefit little from a recovery if jobs remain scarce and spending stays too low to fuel a strong rebound.
The Commerce Department estimated that US gross domestic product, the broadest gauge of economic health, shrank at an annual rate of 1 percent in the second quarter. The new estimate of the nation’s output of goods and services was the same as an earlier estimate released last month.
The negative figure marks a record fourth consecutive quarterly decline. But it was far smaller than the nose dive the economy had taken during the previous two quarters.
Businesses did slash inventories at an even greater rate than had been expected in the spring.
But economists were encouraged by upward revisions in consumer spending, exports, and housing construction. Analysts had expected the second-quarter economic figure to show a drop of 1.5 percent,
“The big surprise in this report was that there was enough spending in the consumer sector and elsewhere to offset all the loss from inventory reductions,’’ said Nigel Gault, chief US economist at IHS Global Insight.
Consumer spending, which accounts for about 70 percent of total economic activity, fell at an annual rate of 1 percent in second quarter - a slight improvement.
Gault predicted the economy will gain momentum in the current quarter and in the final three months of this year as businesses switch from trimming stockpiles to rebuilding inventories. He expects the GDP to jump in the July-September quarter, boosted by the “cash for clunkers’’ auto program.
Growth probably will remain at about 3 percent in the fourth quarter, Gault said. But it could slip in the first half of next year as the support from inventory rebuilding begins to fade. Consumers, faced with bleak job prospects, probably won’t be able to take up the slack, he said.
Unemployment is not expected to peak until next spring. The US jobless rate is now 9.4 percent.
White House economic adviser Christina Romer earlier this week said the unemployment rate is likely to hit 10 percent this year. Economists think the rate will inch back up to 9.5 percent for August, with 220,000 more jobs lost, down from 247,000 in July.
The decline in GDP in the April-June quarter followed declines of 6.4 percent in the first quarter and 5.4 percent in the final three months of 2008.
The four straight quarterly declines in GDP mark the first time that has occurred since the government began keeping such records in 1947.