WASHINGTON – The U.S. economy hit a soft patch in the second quarter but its growth was not as weak as previously thought, the government said on Friday.
Gross domestic product, the broadest measure of the economy's health, rose at an annual rate of 1.3 percent in the second quarter, the Commerce Department said in its "final" or third estimate of GDP. A month ago, Commerce had estimated that second-quarter GDP grew only 1.1 percent.
Even though the growth rate was revised up for the April-June quarter, it was still far slower than the 5 percent growth rate recorded in the first three months of the year. Growth in the second quarter was constrained by a modest 1.8 percent gain in consumer spending and a 2.4 percent drop in business investment in new plants and equipment.
A 14.3 percent jump in export growth helped bring about the upward revision to GDP. Commerce ratcheted up the export gain from a previously estimated 12.3 percent increase.
"(The second quarter) didn't really start out looking like the beginning of a new slowdown but it certainly did leave us with some questions going forward, and it's encouraging therefore to see such things as this better exports number," said Carol Stone, deputy chief economist at Nomura Securities International.
Imports continued to exert drag on growth. They surged 22.2 percent in the second quarter, the biggest gain since a 36.2 percent rise in the first quarter of 1984.
The latest figures had little impact on U.S. financial markets, which are already gearing up for the tally of GDP for the current third quarter. A survey by Reuters of private economist has pegged growth for the three months ended in September at 3.8 percent. The number will be released in late October.
Glimmer of Hope on Business Spending
Even though overall business investment fell, the GDP report offered some encouraging signs about businesses' willingness to spend money on equipment and software. Investment in equipment and software grew 3.3 percent, the first gain since the third quarter of 2000.
Companies are also starting to replenish their stocks of goods. They beefed up inventories by $4.9 billion in the April to June period, the first gain in inventory investment since the final three months of 2000.
"One of the main downward forces in business investment right now is construction. That has languished for some time," Stone said. "It looks to be continuing in that vein whereas yesterday's durable goods orders suggested there may be some stabilization in capital goods orders."
On Thursday, Commerce reported that orders for durable goods fell 0.6 percent. But orders excluding the volatile defense component increased 0.6 percent. That news sent financial markets higher as it encouraged hopes that the economic recovery will prove sturdy.
The GDP report showed that inflation was tame but picked up a bit compared to previous quarters. The closely watched PCE price index rose 2.7 percent, the biggest increase since a 3.3 percent rise in the first quarter of 2001. However, the "core" PCE price index, which strips out volatile food and energy costs, gained only 1.9 percent in the second quarter.