The struggling US economy expanded even more slowly than previously thought in the second quarter of 2011, but a breakdown of the growth suggested a new recession could be avoided.
Gross domestic product rose at an annual rate of 1 per cent, the Commerce Department said on Friday, as restocking by businesses and growth in exports proved less strong than initially estimated. “While confidence indicators have plummeted of late, the most timely hard numbers certainly do not suggest that the economy has fallen back into a recession,” said Harm Bandholz, chief US economist at UniCredit Research in New York.
“Instead, we still continue to expect that growth in the second half of the year will accelerate to about 2 per cent.” The rate of growth between April and June was cut from the government’s first reading of 1.3 per cent and followed a lethargic 0.4 per cent pace in the first three months of 2011. This means the economy grew only 0.7 per cent in the first half of the year. Nonetheless, and despite a sharp fall in consumer confidence this month, economists do not believe the economy will fall back into recession.
The Thomson Reuters/University of Michigan consumer sentiment index fell to 55.7 this month from 63.7 in July. It was slightly better than August’s preliminary reading of 54.9, which had been the lowest level since May 1980. The weak growth pace has been blamed on high gasoline prices, bad weather and supply-chain disruptions from the March earthquake in Japan, all of which are considered to be temporary drags on the economy.
Federal Reserve Chairman Ben Bernanke told a gathering of central bankers from around the globe in the Rocky Mountains of Wyoming that the economy’s recovery from the worst downturn since the 1930s “has been much less robust than we had hoped.” He stopped short of detailing further monetary policy action to bolster the ailing economy, but said the US central bank would consider what more it could do to fight high unemployment.
US stocks rose and Wall Street recorded its first weekly gain in more than a month. Prices of US government debt rose, while the dollar fell against a basket of currencies.
Details of the GDP report were generally encouraging, with consumer spending slightly firmer and businesses accumulating fewer goods than previously thought. Business spending was also more robust than initially believed. This should improve the economy’s prospects for the third quarter, although a strong pick-up in growth remains remote.
