U.S. Economic Growth Slowed to 2.4% Rate in 2nd Quarter
The United States economy expanded at an annual rate of 2.4 percent in the second quarter, after expanding a revised 3.7 percent in the previous three months, the Commerce Department reported on Friday.
Nonresidential fixed investment, which covers items like office buildings and purchases of equipment and software, was a key driver of growth in the second quarter, rocketing up at an annual rate of 17 percent, compared with a 7.8 percent increase in the first. The equipment and software category alone grew at an annual rate of 21.9 percent, the fastest pace in 12 years.
“We’re seeing a sort of handover from consumer spending to capital spending,” said John Ryding, chief economist at RDQ Economics. “The consumer also looks to have saved more than we thought before, which means they’re perhaps further on road to financial adjustment than we thought they were previously.”
Growth in consumer spending, which is usually a leading indicator of a recovery in part because it accounts for such a large share of the economy, has been leveling off. It grew at an annual rate of 1.6 percent in the second quarter, after an annual increase of 1.9 percent in the previous quarter.
The personal savings rate in the second quarter was estimated to have been 6.2 percent of disposable income, significantly higher than the 4 percent that had been estimated.
The fact that businesses seem to be investing more in equipment than in hiring may also be a reason why households have been unable, or perhaps reluctant, to pick up the pace of their spending.
“There are limits on the degree to which you can substitute capital for labor,” Mr. Ryding said. “But you can understand that businesses don’t have to pay health care on equipment and software, and these get better tax treatment than you get for hiring people. If you can get away with upgrading capital spending and deferring hiring for a while, that makes economic sense, especially in this uncertain policy environment.”
Data revisions of covering the last three years were also released on Friday. These showed that overall 2009 and 2008 were slightly worse than previously reported, but that the first quarter of 2010 was better.
As the global economy recovers, America’s trade activity has picked up. But imports once again grew faster than exports last quarter, presenting a net drag on growth. Imports spiked at an annual rate of 28.8 percent, the biggest jump in a quarter-century, compared with an annual increase of 10.3 percent in exports.
Government spending shot up more than many anticipated, growing at an annual rate of 4.4 percent after a decline of 1.6 percent in the first quarter. Public spending was broad-based, with even state and local spending increasing for the first time in a year. This may be in part because of stimulus funds transferred to the states.
“You could see this in the monthly number for state and local construction spending,” said Nigel Gault, chief United States economist at IHS Global Insight. “Construction slows down during winter months, so stimulus may not have been doing as much earlier this year.”
Other policy initiatives, such as the expiring homebuyer’s tax credit, also appear to have lifted demand. Residential fixed investment spending on items like new homes grew at an annual pace of 27.9 percent in the second quarter.
“This will almost certainly reverse hard next quarter,” Jay Feldman, director of economics at Credit Suisse Securities, wrote in a note to clients.
Gross domestic product, a broad measure of the total value of goods and services produced in a given economy, has been expanding for the last year, leading many economists to believe the recession that began in December 2007 is technically over.
Still, G.D.P. growth in the last quarter of 2009 — at an annual rate of 5 percent — was much more robust than it has been this year. This slowdown, coupled with disappointing job creation, has led to worries that the recovery is losing steam. The nation’s unemployment rate continues to linger just below 10 percent.
Some forecasters have predicted even slower growth in the second half of the year, perhaps close to an annual rate of 1.5 percent. Some of that drag will be due to the withdrawal of stimulus-related policy measures, and some to the fact that many businesses have already refilled the stockroom shelves that they whittled down during the crisis.
At that pace of total G.D.P. growth, it may be years before the economy returns to the trend it was on before the financial crisis hit.
“Given how weak the labor market is, how long we’ve been without real growth, the rest of this year is probably still going to feel like a recession,” said Prajakta Bhide, a research analyst for the United States economy at Roubini Global Economics. “It’s still positive growth — rather than contraction — but it’s going to be very, very protracted.”
