story by Shobhana Chandra
The U.S. economy expanded at a slower pace in the second quarter as a softening job market prompted Americans to curb spending.
Gross domestic product, the value of all goods and services produced, rose at a 1.5% annual rate after a revised 2% gain in the prior quarter, Commerce Department figures showed today (July 27) in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.4% increase. Household purchases, which account for about 70% of the world’s largest economy, grew at the slowest pace in a year.
Consumers are cutting back just as Europe’s debt crisis and looming U.S. tax-policy changes dent confidence, hurting sales at companies from United Parcel Service Inc. to Procter & Gamble Co. Cooling growth makes it harder to reduce unemployment, helping explain why Federal Reserve Chairman Ben Bernanke has said policy makers stand ready with more stimulus if needed.
“We have an anemic recovery with really no momentum,” said Julia Coronado, chief economist for North America at BNP Paribas in New York. “It’s reflective of uncertainty in the global outlook. It’s a frustrating picture for policy makers. The report is supportive of further easing.”
Another report today showed consumer confidence in July dropped to the lowest level this year. The Thomson Reuters/University of Michigan final index of sentiment declined to 72.3 this month from 73.2 in June. The gauge was projected to hold at the preliminary reading of 72, according to the median forecast of economists surveyed by Bloomberg News.
“The economy remains on a moderate expansion path,” said Chris Rupkey, chief financial economist at the Bank of Tokyo- Mitsubishi UFJ Ltd. in New York, predicting growth will benefit from a decline in gasoline prices and signs the European crisis may ease.
Forecasts of 82 economists in the survey ranged from gains of 0.7% to 1.9%. The GDP estimate is the first of three for the quarter, with the other releases scheduled for August and September when more information becomes available.
With today’s release, the Commerce Department’s Bureau of Economic Analysis also issued revisions dating back to the first quarter of 2009. The changes showed the first year of the recovery from the worst recession in the post-World War II era was even weaker than previously estimated.
GDP grew 2.5% in the 12 months after the contraction ended in June 2009, compared with the 3.3% gain previously reported, the Commerce Department said.
The final quarter of last year was revised up to a 4.1% gain, the best performance in almost six years, underscoring a more marked slowdown in the first half of 2012. The fourth quarter gain was previously reported as 3%.
Today’s report showed household consumption rose at a 1.5% from April through June, down from a 2.4% gain in the prior quarter. The median forecast in the Bloomberg survey called for a 1.3% advance. Purchases added 1.05 percentage points to growth.
Cutbacks by government agencies continued to hinder growth as spending dropped at a 1.4% annual rate in the first quarter, the ninth decrease in the last 10 periods. The decline was led by a 2.1% fall at the state and local level that marked an 11th consecutive drop.
Business investment cooled last quarter reflecting stagnant spending on commercial construction projects. Corporate spending on equipment and software improved, climbing at a 7.2% pace, up from a 5.4% increase in the previous quarter.
A report yesterday showed the corporate spending outlook has dimmed. Bookings for non-military capital goods excluding aircraft, a proxy for future investment, fell at a 3.1% annual rate in the second quarter, the first decrease since the same period in 2009, when the U.S. was still in a recession, according to Commerce Department data.
A measure of inflation, which is tied to consumer spending, climbed at a 0.7% annual pace in the second quarter, the smallest gain in two years. The slowdown in spending combined with less inflation helped boost the personal saving rate to 4% from 3.6% in the prior period.
Recent data signal consumers are reluctant to step up purchases. Retail sales fell in June for a third consecutive month, the longest period of declines since 2008. Same-store sales rose less than analysts’ estimates at retailers including Target Corp. and Macy’s Inc.