US ECONOMIC growth was revised down yesterday to a 1.6 per cent annual rate in the second quarter, pointing to an even softer performance in the third quarter.
The US commerce department report showed gross domestic product, the measure of total goods and services output within US borders, was dampened by the largest increase in imports in 26 years. Nonetheless, growth was not quite as weak as anticipated.
So far, analysts do not believe the economy will slide back into recession and say the most likely prospect is for continued soft expansion rather than a double-dip downturn.
“The outlook continues to be one of modest growth rather than double dip. The question remains whether sub-par growth that fails to bring down the unemployment rate is a high enough bar for further Fed policy action,” said Julia Coronado, an economist at BNP Paribas in New York.
A private survey showed consumer sentiment pulled back in late August from earlier in the month but still improved from late July.
GDP growth previously was estimated at 2.4 per cent and analysts had feared it would be pushed down even more sharply. But robust business investment and a slight firming in consumer spending partially cushioned the blow from imports.
A slackening recovery poses a major challenge for the Obama administration and the Democratic Party a little over two months away from crucial mid-term elections that could shift the balance of power in Congress in favour of Republicans.
Growth in the last quarter was stifled by a 32.4 per cent surge in imports, the largest since the first quarter of 1984, dwarfing a 9.1 per cent rise in exports. That created a trade deficit, which sliced 3.37 percentage points from GDP, the largest subtraction since the fourth quarter of 1947.
“The growth in imports is across the board. The strong demand for imports indicates there is pent up demand out there, but for growth it’s negative because exports are not keeping pace,” said Gus Faucher, director of macroeconomics for Moody’s Economy.com.
A smaller contribution from business inventories than initially estimated also restrained output. Business inventories increased only $63.2 billion (€49.6 billion), rather than the previously estimated $75.7 billion, adding a slim 0.63 percentage point to GDP.
Inventories, which had been a major driver of the recovery that started in the second half of 2009, increased $44.1 billion in the first three months of the year. Excluding inventories, the economy expanded at a 1 per cent rate, instead of the 1.3 per cent reported last month. – (Reuters)
