WASHINGTON -- The economic slowdown in spring was worse than most thought – and the current quarter isn’t looking that much stronger as manufacturing is weakening.
The Bureau of Economic Analysis on Thursday revised down the nation’s economic growth in the second quarter to a measly 1.3% annual rate, down from its previous estimate of 1.7%.
Most analysts were expecting the government’s third and final report for the second quarter to show that gross domestic product – or total value of goods and services produced -- expanded by 1.7%.
The economy grew at a 2% annual rate in the first quarter, which is hardly robust and not strong enough to bring down unemployment.
The downward revision for the April-June quarter was because of a drought-related drop in farm inventory investments, as well as lower consumer spending for services and weaker U.S. exports than previously estimated.
Analysts said the farm sector was likely to be a drag on the current third-quarter GDP growth too. But that component will likely bounce back in the coming months. The bigger concern is manufacturing, which has been softening amid slowing business investment. Global trade is weakening with the downturn in Europe and decelerating growth in China.
On Thursday, the Census Bureau said new orders for longer-lasting durable manufactured goods plunged 13.2% in August, compared with a 3.3% increase in July.
Analysts said, “Don’t panic,” as it was largely due to an unusually big drop in airplane orders, which are notoriously volatile. Commercial aircraft orders fell by 102% in August from July. After Boeing Co. booked orders for a whopping 260 planes in July, it got just one in August, said Paul Ashworth, chief U.S. economist at Capital Economics. Orders for cars also fell big-time in August, but that too came after a large swing up in July when there were fewer-than-normal summer shutdowns for retooling.
All that said, American manufacturing is clearly losing its previous luster. Manufacturing shipments fell 3% in August. And excluding aircraft, August marked the third month in a row of declining unfilled orders. New orders in July also were revised lower on Thursday.
Based on July and August data, core shipments, which strip out volatile items, are now on pace to decline at an annual rate of 1.7% in the third quarter – the first drop since early 2011, according to economist Peter Newland at Barclays Bank. That won't help third-quarter economic growth.
Macroeconomic Advisers, a leading forecasting firm, said Thursday it was projecting GDP to expand by 1.8% in the third quarter.
“The durable goods report illustrates how uncertain the outlook is for manufacturing and the U.S. economy,” said Daniel J. Meckstroth, chief economist for the Manufacturers Alliance for Productivity and Innovation, an industry trade group. “The cumulative effect of the recession in Europe, the slowdown in China, the U.S. fiscal cliff, and regulatory uncertainty due to the elections seems to be holding back growth. In fact U.S. economic growth is so slow that it has pulled down the pace of manufacturing to a stall speed.”