WASHINGTON, July 31, 2008
Tax Rebates Gave Economy Slight 2Q Boost
Gross Domestic Product Improved To 1.9 Percent Though Lower Than Economists Had Hoped
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(CBS/AP)
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The Commerce Department reported Thursday that gross domestic product, or GDP, increased at an annual rate of 1.9 percent in the April-to-June period. That marked an improvement over the feeble 0.9 percent growth logged in the first quarter of this year and an outright contraction in the economy during the final quarter of last year.
Still, the second-quarter rebound wasn't as robust as economists had hoped; they were forecasting growth to clock in at a 2.4 percent pace. The rebound, while welcome, isn't likely to be seen as a signal that the fragile economy is out of the woods. There are fears that as the bracing tonic of the tax rebates fades, the economy could be in for another rough patch later this year.
Wall Street didn't like what it saw. Stocks appeared headed for a lower opening.
The health of the economy is the top concern of the public - and by extension politicians including candidates vying for the White House.
GDP actually contracted by 0.2 percent, on an annualized basis, in the last three months of 2007, according to annual revisions released by the government.
That contraction reflected the deepest cuts in 26 years from builders clobbered by the housing slump and caution on the part of consumers spooked by all the fallout.
The fourth-quarter's dip marked the worst showing since the third quarter of 2001, when the economy was last in a recession. The government's previous estimate for the final quarter of last year was in positive territory - but not by much - at an anemic 0.6 percent growth rate.
GDP measures the value of all goods and services produced within the United States and is the best barometer of the country's economic fitness.
A pickup in consumer spending and brisk sales of U.S. exports abroad figured prominently in the second-quarter improvement.
Consumers boosted their spending at a 1.5 percent pace in the second quarter. That was up from a 0.9 percent growth rate in the first quarter and marked the best showing since the third quarter of 2007 when the economy was still performing strongly despite the severe housing slump.
Billions of dollars in tax rebates, the centerpiece of the government's $168 billion stimulus package, spurred more spending in some areas by consumers, a major force shaping overall economic activity. Spending on furniture and household appliances went up, while people cut spending on cars.
Meanwhile, sales of U.S. exports grew at a 9.2 percent pace in the second quarter, up from a 5.1 percent growth rate in the first quarter. The weak dollar has made U.S. goods cheaper to foreign buyers, helping to bolster exports.
Government spending also helped second-quarter GDP.
The U.S. housing slump continued to take a bite - although a smaller one - out of overall economic activity.
Builders cut back on residential projects by 15.6 percent, on an annualized basis, in the second quarter. That was not as deep as the 25.1 percent cut made in the first quarter or the 27 percent annualized drop in the final quarter of 2007.
Businesses showed caution in other areas. They trimmed spending on equipment and software and they reduced investment in inventories in the second quarter.
An inflation gauge tied to the GDP report showed all prices galloping ahead at a rate of 4.2 percent in the second quarter, the fastest pace since the end of last year.
However, when energy and food costs are stripped out, all other - or "core" - prices rose at a pace of 2.1 percent, down from a 2.3 percent rise in the first quarter. Still, the second-quarter's core inflation reading is outside the Fed's comfort zone.
But even amidst the struggling economy, the world's largest publicly traded oil company posted a record-breaking profit in the second quarter.
Exxon Mobil reported second-quarter earnings of $11.68 billion Thursday, the biggest quarterly profit ever by any U.S. corporation, but the results fell well short of Wall Street expectations and shares fell in premarket trading.
Exxon said net income for the April-June period came to $2.22 a share, up from $10.26 billion, or $1.83 a share, a year ago.
Given mounting inflation fears, the Fed in June halted a nearly yearlong campaign of rate cuts to shore up the economy. It is expected to hold rates steady again next week. Boosting them too soon to fend off inflation could hurt the economy and the already crippled housing market.
A trio of crises - housing, credit and financial - have badly bruised the economy. In response, employers have cut jobs for six months in a row, bringing total losses this year close to a staggering half-million - 438,000.
The Labor Department reported Thursday that the number of applications for jobless benefits soared to 448,000, an increase of 44,000 from the previous week. That was far worse than the decline of 8,000 that economists had been expecting.
With more job cuts expected for July and in coming months, there's growing concern that many people will pull back on their spending when the bracing effect of the tax rebates fades, dealing a blow to the shaky economy.
These worries - along with the negative GDP in the fourth quarter of last year - may rekindle recession fears.
There has been a lot of debate about whether the economy is on the brink of, or has fallen into, its first recession since 2001. Under one rough rule, if the economy contracts for two straight quarters it is considered to be in a recession.
However, that didn't happen in the last recession - in 2001. The unofficial determination, made by a panel of academics at the National Bureau of Economic Research, usually comes well after the fact. The panel takes into account economic activity, as well as employment, income and other things.
As part of the annual revisions, the government marked down growth in 2005, 2006 and 2007. Last year the economy grew by 2 percent, the weakest showing since 2002. The revisions are based on more information as well as improved methodologies.
© MMVIII, CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.
Michelle Obama tells how her role as the First Lady has changed her perspective.
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See all 25 Comments...as the money printed from them would be about the same value!
Posted by sociald63 at 05:22 PM : Jul 31, 2008
-You may be very right. What concerns me most, personally, is living poor.
Why not give every citizen 3 thousand dollars each month for the next 10 years. That would really make us the most prosperous economy in the world.
Posted by payasyougo
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Not a bad idea. But aren''t we already doing the same for failing banks and corporations?
Everybody knows that the economy has been contracting for years.
Since Republican George Bush mandated after 9/11 to shop by borrowing money and spending it, the illegal Federal Reserve System had the gall to start calling the inflationary increases as income and growth when people took out home equity loans.
And the trillion "dollar" writedowns by the banks are not included in these figures because they''ve been exchanged at the "discount window" for cash by the Federal Reserve System.
So how long do we want the government mainly Repulicans to lie to us?
Of course the media will play it up as a negative Posted by zgomer at 01:00 PM : Jul 31, 2008
Anybody remember the Headline/Main story from a couple of days ago . . . . .
U.S. Headed For Record Deficit In 2009
Bush Administration Blames $482B Budget Deficit On Slumping Economy, Stimulus Payments
WASHINGTON, July 28, 2008
The next president will inherit a record budget deficit of $482 billion, according to a new Bush administration estimate released Monday.
The administration said the deficit was being driven to an all-time high by the sagging economy and the stimulus payments being made to 130 million households in an effort to keep the country from falling into a deep recession. But the numbers could go even higher if the economy performs worse than the White House predicts.
Funny thing is creating a bigger budget deficit is a negative thing.
I found this very interesting and informative. And oh, yes, I just heard on talk radio that the Israel newspaper that printed the Obama prayer editorial, when confronted told the confronter that it was approved by the campaign.........hummmmmmmmm!!!! And they are sticking by their story.
Posted by rosesnpearls at 01:22 PM : Jul 31, 2008
ONE OF THE FIRST THINGS THAT WE SHOULD DO IS TO REPEAL THE "NAFTA BILL". IT MAY BE NEXT TO IMPOSSIBLE TO DO AT THIS LATE DATE. IF SOMETHING IS NOT DONE ALONG THIS LINE WE ARE GOING TO BE IN A WORSE MESS AS TIMES GOES ON. "AGAIN AND AGAIN" I KEEP SAYING TO PEOPLE, LOOK AT WHEN THIS BILL WAS SIGNED AND BY WHO. MR. CLINTON SIGNED THIS BILL IN THE FALL OF 1994.
WERE ARE ON THE VERGE OF SOCIALISM AND IF THIS TREND DOES NOT STOP WE WILL BE THERE IN A VERY FEW YEARS.
Why not give every citizen 3 thousand dollars each month for the next 10 years. That would really make us the most prosperous economy in the world.
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"This shows how f---ed up economic indicators are. This has hurt the overall economy but it doesn''''t show up this way. George "the ostrich" Bush should know better!!!
Posted by johnstossel at 12:15 PM : Jul 31, 2008"
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