U.S. Economy Remains on Solid Footing
The U.S. economy advanced a bit less vigorously during the second quarter than previously thought, the Commerce Department said Friday, but showed no signs of breaking stride.
Gross domestic product, the broadest measure of national economic activity, grew at a 3.3% annual rate in the quarter, down from the 3.6% reported a month ago, the Commerce Department said. Price inflation, though revised upward, remained muted.
“The final result shows an economy exhibiting no significant slowdown,” said economist Allen Sinai of Primark Decision Economics Inc. in Boston, who forecast growth near a 3% rate in the current third-quarter just ending.
“There was a slight second-quarter inventory overhang that some third-quarter data already show is being worked down in an orderly fashion,” Sinai added. “The picture is one of solid and extraordinarily well-balanced growth with low inflation.”
Prices picked up more quickly than estimated a month ago, but not at a pace to prompt the Federal Reserve Board into raising interest rates at a scheduled policy setting session Tuesday, analysts said.
“There is virtually no possibility of anything happening on Sept. 30,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis, adding that the U.S. central bank needs clear evidence of inflationary pressure to justify boosting rates as a dampening measure.
“That’s not here, so the Fed is just going to take a wait-and-see attitude,” Sohn added. The Fed last raised interest rates a quarter percentage point in March and has held them steady as the economy entered its seventh year of unbroken growth--its third-longest expansion since World War II.
The final estimate of second-quarter growth came in a bit weaker than private economists’ forecasts for a 3.7% rate of expansion. But it followed six months of brisk growth--at a 4.3% rate in the fourth quarter and a 4.9% rate in the first three months of 1997.
Financial markets paid scant attention to the data from last spring. Nonetheless, bellwether 30-year Treasury bond prices moved up sharply by 13/32, or $4.06 per $1,000 face value. Their yield, which moves in the opposite direction, fell to 6.37% from Thursday’s close of 6.40%.
Share prices in New York rallied after a three-day slump, with the Dow Jones industrial average up 74.17 points to close at 7,922.18.
GDP measures goods and services produced in the United States, and analysts have been looking for signs that growth might slow to between 2% and 2.5%, a pace traditionally viewed as unlikely to spark inflation.
Sinai said it remains “an open question” how long growth can exceed that pace with labor markets tight and yet exhibit no sign if dangerously accelerating wage and price rises.
(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)
Gross Domestic Product
Percent change from previous quarter, at an annual rate:
2nd quarter: 3.3%
Source: Commerce Department
