Strategy

Q2 Growth Revised Downward

The second-quarter figure was fractionally less than the number economists anticipated a month ago; it had been expected to rise.
Craig SchneiderAugust 31, 2005

Economic growth in the United States was softer in the second quarter than initially thought, reported the Department of Commerce.

Gross domestic product grew at an annual rate of 3.3 percent, according to the Commerce Department, following a 3.8 percent rise in the first quarter. The second-quarter figure was fractionally less than the 3.4 percent economists anticipated a month ago; that number had been expected to rise to 3.5 percent, according to Reuters.

The department also noted that growth in the April-June period was offset by a negative contribution from private inventory investment, a figure which a month ago was believed to have dropped. Citing economists, Reuters noted that the buildup in inventory is believed to reflect less ramping up of production, given the negative impact on the economy expected from rising energy prices.

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Anthony Santomero, president of the Philadelphia Federal Reserve Bank, eased concern that Hurricane Katrina and soaring energy prices would devastate the economy. “These developments may slow the rate at which the economy will grow for a time, but the expansion is strong enough to withstand them,” he said, according to Reuters.

U.S. crude oil prices hit a record high of $70.85 per barrel on Tuesday, but the core price index, which does not include the volatile food and energy sectors, climbed 1.6 percent, less than the first quarter’s 1.8 percent.

After-tax corporate profits rose 6.9 percent compared with a 0.1 decline in the first quarter. As insurance companies pay hurricane-related claims, those profits are expected to dip again, said analysts.

Consumer spending grew at a 3 percent clip, according to the revised figures, slightly less from the 3.3 percent increase first reported. Business investment spending advanced at a solid pace of 8.4 percent.

Imports, which are a subtraction in the calculation of GDP, increased, despite a belief by the department a month ago that imports declined. Exports were stronger than first anticipated, mitigating any decline in GDP from imports.

A separate report on Midwest business activity also appeared to draw attention from the financial markets. The National Association of Purchasing Management-Chicago business barometer fell to 49.2 in August from 63.5 in July. The figure is at its lowest level since April 2003, Reuters noted, but some economists have wondered if it is skewed by softer sales by the region’s automakers.