Economy shows stabilization: GDP down 1%

A revision to gross domestic product shows the U.S. economy declined at a rate of 1% in the second quarter, matching a previous estimate.

EMAIL  |   PRINT  |   SHARE  |   RSS
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all RSS FEEDS (close)
By David Goldman, staff writer

Should the $8,000 first-time homebuyer tax credit be extended beyond Nov. 30?
  • Yes
  • No

NEW YORK ( -- The pace of economic decline in the second quarter slowed at an annual rate of 1%, according to the government's revised reading on gross domestic product. It was unchanged from a previous estimate.

GDP is the broadest measure of the nation's economic activity. Economists surveyed on expected the revised reading to show the economy declined at an annual rate of 1.5% in the second quarter.

The results matched the initial estimate released by the Commerce Department in late July. The decline is still much narrower than the 6.4% drop in the first quarter.

But consumer spending, which accounts for about 70% of GDP, still fell 1%, only slightly better than the 1.2% drop in the first estimate. In the first quarter, consumer spending was actually up 0.6%.

"Consumer spending didn't fall quite as much as the prior estimate, so that means programs like Cash for Clunkers and the [$8,000] tax credit for first-time homebuyers may result in higher demand than previously thought in the coming quarters," said Mark Vitner, economist at Wachovia.

Digging into the numbers. The slower second-quarter contraction was largely due to a smaller decline in exports and business inventories as consumer prices and government spending rocketed higher.

The revised report showed consumer prices rose 0.5% in the quarter, slightly less than the 0.7% increase in the previous estimate. That's still a huge turnaround from the 1.4% drop in prices in the first quarter. Core inflation, excluding volatile food and gas prices, was reported to be at an annual rate of 2%, unchanged from the previous estimate and up from 1.1% in the first quarter.

Business inventories fell by $159.2 billion last quarter, slightly worse than the previous estimate of $141.1 billion and the $113.9 billion drop in the first quarter. But the pace of decline is slowing quickly, suggesting businesses are preparing for economic stabilization -- and perhaps growth -- in the current and coming quarters.

"The fact that the inventory numbers were down more than first reported will make it easier to get a positive GDP number in the third quarter," said Vitner. "The changes are all rather small, but they're all in the right direction. That would tend to strengthen the view that economy is going to snap back in the current quarter."

GDP has contracted for four straight quarters -- the first time that has happened since the Commerce Department began tracking that measure in 1947. But the most recent quarterly decline is the smallest since the second quarter of 2008, giving hope to some economists that the recession is at or nearing an end.

The economy grew just 0.4% last year, and a recent Congressional Budget Office report estimated that it would fall 1% in 2009.  To top of page

They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
10 of the most luxurious airline amenity kits When it comes to in-flight pampering, the amenity kits offered by these 10 airlines are the ultimate in luxury More
7 startups that want to improve your mental health From a text therapy platform to apps that push you reminders to breathe, these self-care startups offer help on a daily basis or in times of need. More
5 radical technologies that will change how you get to work From Uber's flying cars to the Hyperloop, these are some of the neatest transportation concepts in the works today. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Most stock quote data provided by BATS. Market indices are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer. Morningstar: © 2018 Morningstar, Inc. All Rights Reserved. Factset: FactSet Research Systems Inc. 2018. All rights reserved. Chicago Mercantile Association: Certain market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. Dow Jones: The Dow Jones branded indices are proprietary to and are calculated, distributed and marketed by DJI Opco, a subsidiary of S&P Dow Jones Indices LLC and have been licensed for use to S&P Opco, LLC and CNN. Standard & Poor's and S&P are registered trademarks of Standard & Poor's Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC. All content of the Dow Jones branded indices © S&P Dow Jones Indices LLC 2018 and/or its affiliates.