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2Q GDP brightens
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September 28, 2001: 10:59 a.m. ET
U.S. economic output weak, but slightly stronger than initially thought
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NEW YORK (CNNfn) - The U.S. economy grew a bit faster than initially thought in the second quarter, the government said Friday, indicating the world's largest economy was weak but not contracting in the months before the Sept. 11 terrorist attacks.
The gross domestic product (GDP) of the United States grew at a 0.3 percent rate in the quarter, the Commerce Department reported in its final revision of the number. Its previous estimate was growth of 0.2 percent, compared with first-quarter growth of 1.3 percent. Economists surveyed by Briefing.com expected GDP to grow at a 0.1 percent rate.
"It's encouraging, but let's not forget that the focus is on the third quarter and beyond, and that looks a little gloomier," said Hugh Johnson, chief investment officer at First Albany Corp.
Most analysts expect a recession in the United States, commonly defined as two consecutive quarters of economic contraction, after the attacks on New York and Washington, which killed thousands, damaged consumer confidence and sent shockwaves through financial markets around the world.
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David Kelly, economist with Putnam Investments, looks at what the revised numbers mean for the economy and the Fed.
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An early indication of the impact of the attacks on confidence, the University of Michigan's September report on consumer sentiment, came in at 81.8, compared with a final August reading of 91.5, according to a Reuters report. Economists surveyed by Briefing.com had expected the index to fall to 80.0 for September from the survey's preliminary reading of 83.6 for the month.
Separately, a key index of manufacturing in the Chicago area rose to 46.6 in September from 43.5 in August, the area's purchasing managers said Friday. Economists surveyed by Briefing.com expected the index to fall to 41.5 percent, and the better-than-expected reading is a hopeful sign for the beleaguered U.S. manufacturing industry.
On Wall Street, stock prices extended early gains after the manufacturing and consumer confidence data, while Treasury bond prices were mixed.
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In its report, the department said the upward revision was due mainly to sluggish demand for imports, which are a drag on growth. It was the weakest growth rate since the first quarter of 1993, when the economy shrank 0.1 percent.
The biggest boosts to growth in the quarter were consumer and government spending, the report said, while business spending dragged growth nearly to a standstill.
The economic slowdown this year was mostly fueled by a steep decline in business spending on new equipment, especially technology, leading to production cutbacks, a manufacturing recession and hundreds of thousands of job cuts.
While consumer spending, which fuels two-thirds of all economic activity, kept a recession at bay for months, it was starting to flag in the weeks before Sept. 11. Many economists worry confidence will be damaged, at least in the short term, by the attacks.
To bolster consumer confidence and help fend off a recession, the Federal Reserve has cut interest rates eight times this year, from 6.5 percent to 3 percent. The Fed is widely expected to cut its target for short-term rates again after the central bank's policy makers meet next Tuesday, dropping the federal funds rate below 3 percent for the first time in nearly 40 years.
"[Fed] Chairman [Alan] Greenspan will have to act to boost confidence," said Sung Won Sohn, chief economist at Wells Fargo Co. "Another cut at the Nov. 6 [Fed policy] meeting should not be ruled out, lowering the federal funds rate to 2.0 percent. Considering the weak economic outlook, the central bank will remain accommodative in the foreseeable future." 
- from staff and wire reports
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