Brisk consumer spending pushed the economy’s growth ahead at twice the rate first estimated in the second quarter, the Commerce Department said Wednesday, although the revised figure still indicated the weakest showing since the end of 1991.
In a surprisingly strong upward revision, the government said gross domestic product grew at a 1.1% annual rate in the three months from April to June instead of 0.5% estimated a month ago.
GDP measures the value of all goods and services produced by workers and capital within U.S. borders. It is the broadest measure currently available of total economic performance and shows steady growth in national output since the last recession ended in March, 1991.
Even with the upward revision, second-quarter growth remained well below the first-quarter’s 2.7% pace and was the weakest since the fourth quarter of 1991, when GDP barely grew at a 0.1% rate. Still, analysts said the upward revision brightens the picture ahead because stocks of unsold goods were reduced much more rapidly than thought.
“There’s no sign of any problems that could lead to an ultimate recession,” said economist Russ Sheldon of Mellon Bank in Pittsburgh. “Six to eight months of inventory-paring has left us with a solid base for growth ahead.”
Consumers fuel two-thirds of total economic activity through their spending on goods and services, which must then be replaced and in the process create jobs and income.
The revised GDP report showed spending booming upward at a $30.4 billion annual rate between April and June instead of $22.6 billion estimated a month ago--more than twice the first quarter’s $14.3-billion pace.
“What makes it significant is that consumer spending was holding up much better than expected,” said economist David Jones of New York-based Aubrey G. Lanston & Co. “It allows one to speculate that consumer spending now will lay the foundation for a moderate rebound in the second half.”
Jones said he expected GDP to grow at an annual rate between 2.0% and 2.25% in the current third quarter and then to pick up to between 3.0 and 3.25% in the closing three months this year.
Commerce said inventories of agricultural goods, mainly live cattle, were higher in the second quarter than it first thought. But unsold stocks of manufactured goods such as new cars and furniture were lower, so that factories will be encouraged to boost hiring and production.
The quarterly GDP figure will be finally revised a month from now.
“The economy clearly has fairly good momentum left in it,” said economist Eugene Sherman of New York-based M.A. Schapiro & Co. He said he expects third-quarter growth of about 2.0% to 2.5% a year, speeding up to about 3.5% in the fourth quarter.
Sherman said the Federal Reserve Board will probably not need to cut rates again this year because the economy seems to be gathering steam on its own. The central bank announced a small one-quarter percentage point cut in rates early in July--the first reduction in three years--but decided against another lowering when its policy-setting committee met last week.
Commerce said total business inventories grew at a $32.7 billion annual rate in the second quarter instead of $30.4 billion. All the increase was at the farm level, while non-farm businesses’ inventories actually grew slightly less than first thought, at a $31.9 billion annual rate instead of $32.9 billion estimated a month a ago.
For the first time, Commerce issued a new measure of GDP called the chain-weighted basis, along with its current fixed-weight measure. It aims to more accurately capture how consumers and businesses act when prices change.
Like the old measure, it showed much stronger second-quarter economic activity than first thought. Whereas it previously indicated GDP contracting 0.2%, it was revised to show growth of 0.5%. At the end of 1995, the government will begin featuring the new measure as its key gauge of economic performance.
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Gross domestic product, percentage change from previous quarter:
2nd quarter 1995: 1.1%
Source: Commerce Department