Economy dips at 0.7 per cent pace in 2Q
The US economy shrank less than expected in the second quarter as businesses and consumers trimmed their spending at a slower pace, buttressing beliefs that the economy is now growing.
The US economy shrank less than expected in the second quarter as businesses and consumers trimmed their spending at a slower pace, buttressing beliefs that the economy is now growing.
The 0.7 per cent dip in gross domestic product for the April-June quarter follows the 6.4 per cent annualised drop in the first three months of this year, the worst slide in nearly three decades. In the final quarter of last year, the economy sank at a rate of 5.4 per cent
The new reading on second-quarter GDP, reported by the Commerce Department on Wednesday, shows the economy shrinking less than the 1 per cent pace previously estimated. It also was better than the annualized 1.1 per cent drop that economists were predicting. The final revision of second-quarter GDP comes on the last day of the third quarter, in which many analysts predict the economy started growing again at a pace of about 3 per cent. "Growth should be solidly positive," said Mark Vitner, economist at Wells Fargo Securities.
Gross domestic product measures the value of all goods and services _ from machines to manicures - produced in the US It is the best estimate of the nation's economic health. A main reason for the second-quarter upgrade: businesses didn't cut back spending on equipment and software nearly as deeply as the government had thought. Consumers also didn't trim their spending as much.
But on Wall Street, a surprise drop in the Chicago Purchasing Managers Index, considered a precursor to the national Institute for Supply Management index to be released on Thursday, sent stocks reeling. The Dow Jones industrial average lost about 75 points in midday trading, and broader indices also fell.
Many analysts predict the economy started growing again in the July-September quarter, due partly to President Barack Obama's $787 billion stimulus package and the government's now defunct Cash for Clunkers program, which had ginned up auto sales. It offered people rebates of up to $4,500 to buy new cars and trade in less efficient gas guzzlers.
Earlier this month, Federal Reserve Chairman Ben Bernanke said the recession, which started in December 2007, is "very likely over."
