US Economic Growth Revised Up--Economy Roars Ahead at 5.6% in 2nd Quarter, Jobless Claims Down

greenspun.com : LUSENET : Grassroots Information Coordination Center (GICC) : One Thread

Thursday September 28 12:23 PM ET

US Economic Growth Revised Up--Economy Roars Ahead at 5.6% in 2nd Quarter, Jobless Claims Down

By Glenn Somerville

WASHINGTON (Reuters) - The durable U.S. economy charged ahead more vigorously than previously thought during the April-June quarter, largely because the country's trade performance was modestly better than estimated earlier, the Commerce Department reported on Thursday.

Gross domestic product, or GDP -- the measure of total economic output within U.S. borders -- rose at a revised 5.6 percent annual rate during the second quarter, up from 5.3 percent estimated a month ago and well ahead of the first quarter's 4.8 percent growth rate.

In another report adding to the picture of a buoyant U.S. economy, the Labor Department reported that the number of new claims for jobless benefits fell an unexpected 24,000 in the latest week, dropping to its lowest level in two months.

Initial jobless claims fell for the second straight week to 287,000 in the week ended Sept. 23 from a revised 311,000 in the prior week. The closely watched four-week moving average, which smooths out the volatility in the weekly figures, also fell for the second consecutive week, to 308,750 in the Sept. 23 week from 316,500 in the prior week.

Although analysts largely wrote off the GDP data as ancient history, some said the jobless numbers pointed to a resilient U.S. job market that would nudge the Federal Reserve to warn that inflation is still a threat to the booming U.S. economy after it concludes its next rate-setting meeting on Tuesday.

``There had been some thought that the labor market was loosening up a bit, but this would call that into question,'' First Union chief economist David Orr said.

The Fed is widely expected to leave short-term interest rates unchanged next week amid signs the U.S. economy is losing some steam while inflation remains under control. U.S. central bankers raised U.S. interest rates six times from June 1999 to May to keep inflation reined in.

Slowing Still Seen

The revised increase in second-quarter GDP outstripped Wall Street analysts' expectations for a 5.4 percent rate of growth. Still, most economists believe the U.S. economy is set to slow amid signs that costlier credit is braking key sectors like housing and curbing spending on expensive goods like new cars.

There were scant signs of inflation in the second quarter, as a key price gauge of personal consumption spending slowed to a revised 2.1 percent rate of increase from 2.3 reported a month ago, well below the first quarter's 3.5 percent gain.

``The downward revision to the price indices was somewhat pleasant news,'' Paul Kasriel, chief domestic economic at Northern Trust, said.

Analysts got another piece of the inflation puzzle on Thursday after the Labor Department revised up its Consumer Price Index, a key inflation gauge, for so far this year after the discovery of an error in the department's calculations.

The department said the CPI for the January to August period rose at a revised 3.5 percent annual rate instead of 3.4 percent, the previously published number. The closely watched core rate, which excludes food and energy, had risen at a rate of 2.7 percent instead of 2.6 percent so far this year.

Economists said the revision could stir talk that the Fed may have to raise interest rates again in the future to keep a lid on inflation.

``I think it starts to increase the probability the next (Fed) move may still be to tighten, not to ease, unless we get some relief on inflation and wage pressures,'' Kasriel said.

Exports, Consumer Spending Up

Commerce said the main reason for the revision in second-quarter GDP was that imports of services were about $3.1 billion lower than it thought a month ago and exports were $2.1 billion higher. The United States still is running a huge deficit on trade in goods with the rest of the world but not quite as substantial as estimated last month.

Consumers, who fuel two-thirds of national economic activity through their purchases of goods and services, began to rein in their spending during the second quarter. While personal consumption spending advanced at a revised 3.1 percent pace, up from 2.9 percent previously reported, that was less than half the first quarter's 7.6 percent rate of increase.

Companies added strongly to their inventories in the second quarter, helping bolster growth by keeping production up. Stocks of goods on hand increased at a revised $78.6-billion annual rate instead of $79.3 billion, more than double the first quarter's $36.6-billion rate of growth.

Many analysts expect inventory build-up slowed in the third quarter, causing GDP to slow. The Commerce Department will issue its first estimate of third quarter GDP on Oct. 27. http://dailynews.yahoo.com/h/nm/20000928/bs/economy_leadall_dc_3.html

-- Carl Jenkins (Somewherepress@aol.com), September 28, 2000


Moderation questions? read the FAQ