US economy slows to 2.4% in Q2 as trade gap widens

Written by Bloomberg | Updated: Aug 1 2010, 04:39am hrs
Growth in the US slowed to a 2.4% annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and cooler consumer spending.

The increase in gross domestic product compared with a median forecast of 2.6% of economists surveyed by Bloomberg News and follows an upwardly revised 3.7% pace in the first quarter that showed a jump in inventories, according to figures from the commerce department on Friday in Washington. Business investment climbed at the fastest rate since 1997.

A slower pace of growth means employers may be reluctant to hire workers and more likely to keep a lid on prices in order to boost sales. Federal Reserve chairman Ben S Bernanke last week said the central bank is prepared to take further policy actions if the worlds largest economy doesnt continue to improve.

The economy entered the second quarter with plenty of momentum but exited with very little, Nigel Gault, chief US economist at IHS Global Insight in Lexington, Massachusetts, said before the report. We expect that growth in the third quarter will be slower. The projected gain was based on the median estimate of 81 economists surveyed. Forecasts ranged from gains of 1% to 4%. The worst US recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to the commerce departments annual revisions also issued on Friday.

The worlds largest economy shrank 4.1% from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7% drop previously on the books, the report showed. Household spending fell 1.2% in 2009, twice as much as previously projected and the biggest decline since 1942. Consumer spending, which accounts for about 70% of the economy, rose at a 1.6% pace last quarter, compared with a 1.9% rate the previous three months that was smaller than previously estimated, todays report showed. Job gains have been slow to take hold, curbing household purchases.

The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. At the same time, the public is sceptical of the President Barack Obamas stimulus program and wary of more spending, with more than half saying the deficit is dangerously out of control. Obama is trying to garner support for his plan to provide $12 billion in tax breaks, ease terms for loans guaranteed by the Small Business Administration and create a $30 billion fund to help community banks offer loans to small businesses. The trade gap in the second quarter widened to $425.9 billion from $338.4 billion, subtracting 2.8 percentage points from growth, the biggest reduction since 1982, todays report showed. Imports grew at a 29% pace, while exports climbed 10%.