WASHINGTON: The US economy clocked in at a robust 3.4 per cent annual growth rate in the second quarter, fresh evidence the country’s business climate is sunny despite surging energy costs.
The solid increase in the gross domestic product for the April-to-June quarter, reported by the Commerce Department yesterday, came on the heels of a larger 3.8 per cent growth rate in the opening quarter of this year.
GDP measures the value of all goods and services produced within the United States and is considered the broadest barometer of the country’s economic standing.
Despite the toll of elevated energy prices, consumers and businesses still managed to boost spending and investment modestly, helping to underpin overall economic growth in the second quarter. “There has been a lot of hand wringing going on about high energy prices, consumer debt, fears of terrorism, fears of China, the housing bubble – the list is long and yet these numbers show there is a stealth boom going on in the business world,” said Ken Mayland, president of ClearView Economics.
The main reason why growth slowed in the second quarter compared with the first was that businesses were working off excess supplies of goods. That actually subtracted 2.32 percentage points from GDP. In the first quarter, businesses had bulked up their inventories.
The showing for the second quarter was slightly lower than the 3.5 per cent pace that economists were forecasting before the release of the GDP report.
In other economic news, the Labour Department reported that workers’ wages and benefits grew by 0.7 per cent in the second quarter – the same as the first quarter. That suggested that recovery in the job market isn’t fanning inflation on the compensation front. The economy’s recovery from the 2001 recession turned out to be weaker than the government previously had estimated, according to new figures – part of comprehensive annual revisions of the GDP data – also released yesterday.
Economic growth averaged 2.8 per cent over the last three years, down from the 3.1 per cent that originally had been reported for the period. For all of 2004, the new figures show the economy expanded by 4.2 per cent, versus the old estimate of 4.4 per cent. Even with the slightly lower growth, last year’s performance was still the best since 1999.
Federal Reserve Chairman Alan Greenspan, in an appearance before Congress last week, had mostly positive things to say about the economy’s current performance. Yet he signaled that interest rates would continue to move up in an effort to prevent rising energy prices from sparking a broader outbreak of inflation.
An inflation gauge tied to the GDP report showed that prices rose at a rate of 3.3 per cent in the second quarter, compared with a 2.3 per cent growth rate in the first quarter. Excluding food and energy, though, prices increased at a rate of 1.8 per cent in the second quarter, an improvement from the 2.4 per cent pace seen in the first quarter. The moderation in this price measure, which is closely watched by the Fed, suggests the central bank can stick with its measured approach to raising interest rates.             – AP
Last update on: 30-7-2005