U.S. Growth in 2nd Quarter Is at Slowest Pace in a Year
Rising imports kept U.S. economic growth at its slowest pace in a year during the second quarter and put a damper on corporate profits overall, the Commerce Department said Thursday.
Gross domestic product, the broadest gauge of total economic activity, expanded at a revised 1.8% annual rate in the April-to-June quarter--the weakest since a matching 1.8% rate in the second quarter of 1998 and well below last month’s initial estimate of 2.3% growth.
That was less than half the first quarter’s 4.3% annual rate of growth in output of goods and services within U.S. borders. The department issues three estimates of quarterly economic performance, with the final one for the second quarter to come in a month.
Most analysts emphasized that the economy was set to rebound in the second half of 1999, the same pattern as occurred last year, because of robust consumer spending and strong business investment.
“The GDP report, in spite of its modest growth pace, does not point to a moderation in economic activity,” said economist Joel Naroff of Naroff Economic Advisers Inc.
“Instead, it warns that we could easily see a sharp re-acceleration in growth this quarter,” he added, not what Federal Reserve policymakers wanted when they raised short-term interest rates Tuesday to moderate the pace of activity.
The second-quarter GDP report revised upward consumer spending and investment in new plants and equipment by corporations anticipating that demand for everything from new cars to building materials will remain buoyant.
“This slowdown in the growth of GDP is temporary and based largely on a one-time inventory runoff,” said economist Gordon Richards of the National Assn. of Manufacturers.
He added that “precautionary stockpiling prior to the advent of possible Y2K problems” was likely to boost production as the year wears on. Many companies are expected to increase imports for fear that countries such as China will experience greater production disruptions when 2000 occurs.
The GDP report also showed that total corporate profits grew at a slower 1.7% annual rate in the second quarter after a 6.2% first-quarter jump, partly reflecting competition from cheaper-priced imports.
Although many blue-chip U.S. companies reported strong earnings growth in the second quarter, the overall profit figure suggests many small and mid-sized firms were struggling.
Separately Thursday, the Labor Department said new claims for jobless benefits dropped last week by 5,000 to 283,000, another sign that continuing growth was offering ample job opportunities.
Meanwhile, the Federal Reserve’s decision in June to raise interest rates for the first time in two years wasn’t unanimous: One Fed policymaker dissented on the grounds that the move wasn’t needed to keep inflation under control, according to minutes of the June meeting released Thursday.
Robert McTeer, president of the Federal Reserve Bank of Dallas, was the sole opponent of the Fed’s June decision to raise its key short-term interest rate from 4.75% to 5%. The Fed raised that rate to 5.25% on Tuesday.
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Gross Domestic Product
Percentage change from previous quarter, annualized rate:
2nd quarter: +1.8%
Source: Commerce Department
