Economy Up Only 1.2% Before Gas Price Spiral

The U.S. economy grew at a lackluster annual rate of 1.2% in the April-June quarter, the government said today in a report showing widespread weakness even before Mideast turmoil boosted recession fears.

The small advance in the gross national product--the country’s total output of goods and services--served to emphasize just how close to a recession the economy is skirting.

Many economists are forecasting an imminent economic downturn. The forecasts are based on a belief that higher oil prices in the aftermath of the Aug. 2 Iraqi invasion of Kuwait will rekindle inflation and end the peacetime record of nearly eight years of economic growth.

The 1.2% GNP growth in the second quarter was especially disappointing because it represented no change from an initial GNP report one month ago.

In advance of today’s report, many analysts had been forecasting that the GNP would be revised upward based on higher U.S. export sales than originally believed.

Exports were revised upward as was consumer spending. However, both of those areas of upward revisions were offset by a downward revision in production being held as inventories.

Economists believe inflation will worsen significantly in the third quarter, reflecting the higher prices Americans are paying for gasoline and other forms of energy.

The Bush Administration has insisted that the country will be able to avoid a recession, even with the uncertainty in the Mideast, if the Federal Reserve begins to lower interest rates to boost lagging growth.

However, the central bank, concerned about rising inflationary pressures, has given no signal that it plans to push interest rates lower to keep the country out of a recession.

The Commerce Department also reported today that after-tax profits earned by American corporations slipped 0.2% in the second quarter, their poorest showing since a 5.9% decline in the third quarter of 1989.

The 1.2% GNP growth in the second quarter represented the fifth consecutive quarter in which the economy expanded at an annual rate below 2%.