Tax rebate checks and robust exports helped the U.S. economy grow at a faster-than-expected rate in the second quarter, the government reported Thursday. But some economists warned that those two pillars couldn’t prop growth up for long.
U.S. gross domestic product increased at a brisk 3.3% annual pace in the April-June quarter, according to the Commerce Department. That was the best showing since the third quarter of 2007, beating the government’s earlier estimates of a 1.9% growth rate and topping economists’ forecasts of 2.7%.
The report gave a boost to Wall Street, where the Dow Jones industrial average jumped almost 2%, rising 212.67 to 11,715.18. A drop in oil prices of $2.56 to $115.59 a barrel also helped push stocks higher.
The GDP measures the value of all the goods and services produced by the United States and is considered the best gauge of the nation’s overall economic well-being.
The government said the increase was due to accelerating exports and a falloff in imports, a rise in spending by consumers and by state and local governments, and signs of improvement in the housing sector.
Exports grew at a 13.2% rate in the quarter, more than double the first-quarter rate. Consumer spending rose 1.7%, the biggest increase in nearly a year, as government rebate checks of as much as $600 per person sent shoppers scurrying to malls and big-box retailers.
However, some economists questioned whether those factors could sustain economic growth through the second half of the year and into 2009.
“We can’t be overly upbeat about this particular report,” said Bernard Baumohl, chief global economist at Economic Outlook Group in Princeton, N.J. “Yes, it was a lot higher than people expected, but conditions are dramatically different now than they were in the second quarter.”
The last government stimulus checks went out early last month, Baumohl noted, and their one-time boost to consumer spending is largely over.
In addition, the global economy is starting to slow, which could damp the appetite for U.S. goods abroad. That could especially be true in the European Union -- America’s No. 1 export market -- where weakening economic conditions are helping pump up the dollar in relation to the euro. A stronger dollar makes U.S. exports more expensive and less competitive in overseas markets.
“The fact that foreign demand for our goods has been supporting the U.S. economy puts us in a very precarious situation should world economic growth slow more than expected,” said Ellen Beeson Zentner, senior U.S. economist for Bank of Tokyo-Mitsubishi UFJ in New York.
She took some comfort in the recent decline in the price of oil and other commodities. However, she noted that ongoing turmoil in the credit and stock markets continues to take a toll on household wealth and consumer spending, which accounts for about two-thirds of U.S. economic activity. Preliminary readings of third-quarter consumer spending haven’t been especially encouraging, she said.
In addition, although the Labor Department reported Thursday that first-time jobless benefit claims fell to 425,000 last week, the number remained above the 400,000 level that economists consider the dividing line between a growing or shrinking economy.
Baumohl said the weak job situation made it even less likely that consumers could pump some life into the economy later this year. The recent relief at the pump probably won’t be enough to change that.
“People are relieved that gasoline prices are coming down,” he said, “but let’s not uncork the champagne bottles just yet.”
The GDP report also showed that businesses cut investments in equipment and software by 3.2%, more than in the first quarter, and investment by home builders fell 15%, although this was an improvement over the first-quarter drop of 25%.
After-tax corporate profits, meanwhile, fell 3.8% in the second quarter after increasing 1.1% in the first three months of the year. Even the White House struck a cautious tone on the GDP report.
“We’re pleased with the numbers. We think that they are heading in the right direction,” White House spokeswoman Dana Perino said. But “no one’s doing a victory dance.”