US growth slows to 2.4% in Q2

Consumers turn cautious but business spending shows some encouraging signs

(Washington) THE United States' economic recovery lost momentum in the spring as growth slowed to a 2.4 per cent pace, its most sluggish showing in nearly a year and too weak to drive down unemployment.

Consumers spent less, companies slowed their restocking of shelves and the nation's trade deficit dragged more on the economy in the April-to-June quarter.

In a separate report, the Commerce Department said the recession was deeper than previously estimated.

The Commerce Department's report released yesterday also showed that the economy grew at a 3.7 per cent pace in the first three months of this year. That was much better than the 2.7 per cent pace estimated just a month ago.

Still, the recovery has been losing power for two straight quarters. That raises concerns about whether it will fizzle out. Or worse, tip back into a 'double-dip' recession.

Consumer spending, usually the lifeblood of economic activity, slowed in the second quarter. Such spending rose at an anaemic 1.6 per cent pace. That was down from a 1.9 per cent pace in the first quarter and was the weakest showing since the end of last year.

Instead, Americans saved more. They saved 6.2 per cent of their disposable income in the second quarter, the highest share in a year.

The 2.4 per cent growth rate logged in the April-to-June quarter was slightly less than the 2.5 per cent pace economists were forecasting.

It was also the weakest since a 1.6 per cent pace in the third quarter of last year, when a record streak of four straight losing quarters came to an end.

'The economy is growing but not enough to make most Americans happy. At this weak pace, it will take more time than many hoped for people to really feel the benefits of this upturn,' said Joel Naroff, president of Naroff Economic Advisors.

In the revisions issued yesterday, the government estimated that the economy shrank 2.6 per cent last year - the steepest drop since 1946.

However, there were some encouraging signs in terms of business spending. Spending by businesses on equipment and software increased at a blistering 21.9 per cent pace in the second quarter, the most in nearly 13 years.

Builders boosted spending on commercial projects, such as office buildings and plants, at a 5.2 per cent pace. It marked the first increase after seven straight quarters of cuts.

Overall economic growth was bolstered in the second quarter by strong spending by the federal government. It boosted spending at a 9.2 per cent pace, the most in a year. And, state and local governments, coping with budget shortfalls, increased their spending for the first time in a year. -- AP

Source: Business Times, 31 Jul 2010