Economic Slowdown Sharper Than Projected

Real GDP increased at an annual rate of 2.8 percent in the second quarter, a significant slowdown from the first quarter's 4.5 percent.
Ed ZwirnAugust 30, 2004

The U.S. economy’s rate of expansion slowed more sharply in the second quarter than originally projected, according to a report by the Department of Commerce.

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 2.8 percent in the quarter, according to preliminary estimates released Friday by the department’s Bureau of Economic Analysis. That figure for real GDP is slightly lower than the 3 percent advanced estimate issued last month, and it represents a significant slowdown from the first quarter’s 4.5 percent.

The downshift from last month’s estimate, reported the BEA, was due to an upward revision to imports and a downward revision to exports, widening the trade gap to a record $55.8 billion for the month — far higher than had been assumed in last month’s estimate.

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“It is exactly as expected,” said Ram Bhagavatula, chief economist at the Royal Bank of Scotland Financial Markets, according to Reuters. “Consumption was revised up. But really it’s the third quarter that matters now, and the July data show a reasonably strong bounce back. The third quarter will be stronger.”

According to Friday’s release, after-tax profits also suffered, falling 1.2 percent from first-quarter figures. That drop was the largest since the first quarter of 2003, when corporate profits tumbled 4.5 percent.

The GDP report confirmed that inflation pressures were tame in the quarter; two closely watched price measures scaled back slightly from initial estimates. The core price index for consumer spending rose at an annual rate of 1.7 percent, a downward revision from an originally reported 1.8 percent. Overall, prices rose at a 3.2 percent annual rate, compared with 3.3 percent in the first quarter.

Investment in inventories as well as in equipment and software also received an upward boost, while consumer spending rose 1.6 percent, well above the 1.0 percent rise that was forecast a month earlier.

Real gross national product — the goods and services produced by the labor and property supplied by U.S. residents — increased 1.4 percent in the second quarter, compared with a first-quarter increase of 3.9 percent. GNP, unlike GDP, includes net receipts of income from the rest of the world, which decreased $37.6 billion in the second quarter compared with a first-quarter decrease of $13.4 billion.