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Economy shrinking, but less

WASHINGTON — Further evidence the recession is ending came in a report Thursday confirming that the economy shrank at an annual rate of just 1 percent in the second quarter of the year. Many analysts say growth has likely returned in the current quarter.

The Commerce Department estimated that the U.S. gross domestic product, the broadest gauge of economic health, shrank at an annual rate of 1 percent in the second quarter. The negative figure marks a record fourth consecutive quarterly decline. But it was far smaller than the nosedive the economy had taken during the previous two quarters.

The GDP declined 6.4 percent in the first quarter and 5.4 percent in the final three months of 2008, the sharpest back-to-back declines in a half-century. The four straight quarterly declines in GDP mark the first time that has occurred on government records dating to 1947.

For the second quarter, businesses slashed inventories at an even greater rate than had been expected. But economists were encouraged by upward revisions to 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 U.S. 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 the second quarter. It was a slight improvement from the 1.2 percent decline reported last month.

Gault expects the GDP to jump to above 3 percent in the July-September quarter, boosted by the Cash from Clunkers auto program.

Growth likely will remain around 3 percent in the fourth quarter, Gault said. But then 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, won't likely be able to take up the slack, he said.

Unemployment is not expected to peak until spring, probably somewhere above 10 percent. The jobless rate is now 9.4 percent.

Some analysts worry the country could face a double-dip recession in which growth returns for a while, only to falter again as beleaguered consumers remain reluctant to increase spending.

First-time unemployment claims fell to a seasonally adjusted 570,000, from an upwardly revised 580,000 the previous week, the Labor Department said Thursday. The number of those continuing to claim benefits dropped to 6.13 million from 6.25 million, the lowest level since early April.

The weekly figures remain far above the roughly 325,000 claims that analysts say is consistent with a healthy economy.

Economy shrinking, but less 08/27/09 [Last modified: Thursday, August 27, 2009 9:48pm]
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