Economy slowed in 2nd quarter
By Jeannine Aversa
Associated Press
WASHINGTON — The economic recovery lost momentum in the spring, but many analysts believe that it picked up some speed this quarter as free-financing deals and record-low mortgage rates enticed people to buy cars and homes.
The Commerce Department reported yesterday that the economy grew at an annual rate of 1.3 percent in the April-June quarter.
The latest reading on gross domestic product, considered the best barometer of the nation's economic health, represented a slightly stronger performance during the second quarter than the 1.1 percent growth rate previously thought.
It still marked a dramatic slowdown from the sizzling 5 percent pace posted during the first quarter, as consumers turned more cautious during the second quarter when confronted with a wave of accounting scandals and a stock market slide.
Many analysts believe GDP, which measures the total value of goods and services produced in the United States, grew at a rate of 3 percent or 4 percent in the July-September quarter. Much of that pickup is expected to reflect a more energized consumer, economists said. The rate will be announced Oct. 31.
The seesaw pattern of quarterly economic growth largely reflects consumers' behavior. The vigor of their spending has fluctuated from quarter to quarter, but the consumers nevertheless have provided the main engine for economic recovery.
Growing numbers of economists believe that the economy will slow again in the fourth quarter, in part reflecting heightened economic uncertainties due to possible war with Iraq. Some economists believe that the fourth-quarter GDP could come in at a rate of around 2.5 percent.
"The consumer was pivotal in terms of the pickup in growth in the third quarter and will be the primary reason why fourth-quarter growth will ease," said Lynn Reaser, chief economist at Banc of America Capital Management.
"It's been a ragged recovery."
Strong automobile sales stoked by free-financing deals figured prominently in economists' predictions of stronger consumer spending in the third quarter, which ends Sept. 30.
Low mortgage rates — those on 30-year fixed-rate mortgages dipped this week to a new low of 5.99 percent — have motivated people to buy homes. When people buy homes, they usually buy new things to put in them, which helps economic growth.
"I think we had modestly strong growth in the current quarter, but it was narrow growth — coming from housing and auto sales, " said economist Clifford Waldman of Waldman Associates.
The small upward revision in second quarter GDP came from a slight improvement in the United States' trade picture. Even with the slightly higher GDP, the economy struggled with below-par growth in the second quarter.
"The data still clearly show a dramatic slowing between Quarter 1 and Quarter 2, but all the signs now point to an equally dramatic acceleration between Quarter 2 and Quarter 3," said Ian Shepherdson, chief economist at High Frequency Economics.
"The key characteristic of growth this year is not that it is slow but that it's volatile."
Consumer spending in the second quarter grew at an annual rate of 1.8 percent, a tad weaker than the government's earlier estimate and considerably less brisk than the 3.1 percent rate in the first three months of this year.
Businesses slashed spending on new factories, office buildings and other structures at a rate of 17.6 percent in the second quarter, even worse than the 14.2 percent rate of decline posted in the first quarter.
Businesses, whose profits took a hit during the slump and have yet to fully recover, have been wary of making big commitments to hiring and capital spending. Such spending is necessary for the economy to restore itself to good health, economists said.
