Economic Growth Revised Downward
U.S. economic growth slowed more sharply in the second quarter than first thought as oil prices rose and the trade gap swelled, the government said Friday.
U.S. gross domestic product, which measures total output within the nation’s borders, expanded at a 2.8% annual rate in the second quarter to $10.8 trillion, down from the 3% pace estimated last month by the Commerce Department.
The downward revision marked a sharp slowdown from the first quarter’s 4.5% expansion but was widely expected by Wall Street, and markets had little reaction.
“Rapidly fading fiscal stimulus, a collapse in mortgage refinancing and sharply higher energy costs reduced households’ purchasing power,” said Steven Wood, an economist at Insight Economics.
The Commerce Department said the downgrade to the GDP estimate was caused by an upward revision to imports -- which detract from growth -- and a downward revision to exports.
Federal Reserve Chairman Alan Greenspan spoke Friday at an annual symposium in Jackson Hole, Wyo., but did not address the report. He warned instead that an aging U.S. population would strain public finances and hurt the economy if policymakers did not make swift fixes to the social safety net, such as raising the age for full retirement benefits.
“If we have promised more than our economy has the ability to deliver to retirees without unduly diminishing real income gains of workers, as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels,” Greenspan said.
“If we delay, the adjustments could be abrupt and painful.”
The Fed chief said raising payroll taxes to fund shortfalls in Social Security and Medicare might only worsen the situation by imposing an extra burden on workers. He said altering policy to encourage a longer working life for Americans would help.
A second report Friday showed U.S. consumer sentiment picked up more than expected in late August as oil prices eased from record highs and security fears abated.
The University of Michigan’s index of consumer sentiment rose to 95.9 in late August from 94 earlier in the month, but it was down slightly from 96.7 at the end of July.
Confidence took a knock early in the month as oil prices spiked and consumers expressed concern about the prospects for the economy. But with crude oil prices heading lower, analysts had expected some of this pessimism to evaporate.
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Slower pace
Percentage change in gross domestic product by quarter, annualized real rate
2004: +2.8%
Source: Commerce Department
