GDP Revision Shows Economy Grew More Than Expected
A WALL STREET JOURNAL ONLINE NEWS ROUNDUP
WASHINGTON -- The economy grew more than expected in the second quarter amid a surge in military spending and more spending by consumers than previously thought.
Second-quarter gross domestic product, a measure of all the goods and services produced in the U.S., rose at a revised 3.1% annual rate, the Commerce Department said Thursday, higher than the government's initial estimate of 2.4%. GDP will be revised again next month.
The revision was stronger than the 2.9% economists had expected, according to a survey by Dow Jones, and marked the economy's best performance since the third quarter of 2002. The rebound came after two straight quarters of anemic economic growth. GDP rose at a 1.4% pace in the final quarter of 2002 and the first three months of the year.
Insight Economics' Steven Wood was impressed by the report. "With strong sales and low inventories, production will also have to be increased. Early estimates of Q3 and Q4 GDP are running in the 4% to 5% range, which should be fast enough to begin job creation and, hopefully, produce a self-sustaining expansion."
The government's estimate of after-tax corporate profits, known as "economic" profits, fell 3.4% in the second quarter, after climbing 3.8% in the first quarter. Economists had expected that gauge to increase this quarter.
Meanwhile, initial jobless claims rose by 3,000 to 394,000 in the week that ended Saturday, the Labor Department said. Most of the 3,000 were attributed to workers filing who were unable to file a week earlier due to the blackout in the Northeast.
Economists had expected claims to rise by 9,000. Even with the modest increase, claims remained below 400,000, a level associated with a weak job market. That offered hope that the pace of layoffs is stabilizing.
Michigan alone said state claims were affected by the blackout. Georgia had the highest number of claims at 1,463, which it attributed to layoffs in the textile and manufacturing industries. California reported the biggest decrease at 8,800, citing fewer staff reductions in the service industry.
A surge in military spending was a major factor in the strong GDP report. Spending by the federal government on national defense increased at a whopping 45.9% rate, the largest increase since the third quarter of 1951. The new estimate was stronger than the 44.1% growth rate for such spending reported a month ago.
However, consumer and business spending also showed an improvement, an encouraging sign that the economy is on solid footing.
Consumer spending grew at a 3.8% pace during the quarter, up from a 3.3% growth rate previously estimated. Much of that pickup reflected increased spending on big-ticket goods, such as cars and appliances. Consumer spending on such "durable" goods grew at a sizable 24.1% rate, the biggest gain since the end of 2001.
There were also signs in the GDP report that businesses, whose reluctance to spend in previous quarters was a main factor in the economy's listlessness, may be coming around. Businesses increased spending in the second quarter on equipment and software at an 8.2% pace, up from the 7.5% growth rate previously reported, and a turnaround from the cut in such spending made during the first quarter of this year.
And, after six straight quarters of cutting spending on plants and other structures, businesses increased such investment in the second quarter at a 7.1% rate, also stronger than the 4.8% growth rate first estimated for the quarter.
The nation's trade deficit also was less of a drag on second-quarter GDP than the government previously thought. The trade deficit shaved off 1.2 percentage point from GDP, compared with the 1.56 percentage point reduction first estimated.
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