U.S. Economy Slows To A Crawl
The U.S. economy turned in its weakest performance in eight years during the second quarter as businesses slashed investment spending and pared back bloated inventories, the government said Friday.
The Commerce Department said gross domestic product, the broadest measure of the nation's economic health, increased at an inflation-adjusted annual rate of 0.7 percent in the April to June quarter. That followed a 1.3 percent gain in the first quarter.
The second-quarter GDP figure marked the economy's most lackluster showing since a 0.1 percent contraction in GDP in the first quarter of 1993.
Private economists polled by Reuters thought GDP growth would come in slightly stronger, at 0.9 percent.
The weakness in the second quarter came from a huge 13.6 percent cutback in spending on new plants and equipment by American businesses, the steepest reduction since the spring of 1982, when the country was bogged down in the worst recession of the post-World War II period.
Some economists had been afraid that the GDP would tip into negative territory in the second quarter, signaling the possible start of the first recession in the United States in 11 years.
While growth remained positive, the rate of expansion was the weakest since a 0.1 percent rate of decline in the first quarter of 1993 as the country was struggling to emerge from the last recession and underscored the dangers still facing the economy.
The White House quickly blamed the sour numbers on the Clinton administration with a speech by the president Friday morning, CBS News White House Correspondent Peter Maer reports.
The Friday GDP release was accompanied by the government's annual revision to previous GDP estimates to reflect more complete economic data.
Those revisions showed a dramatic reduction in growth for last year from 5 percent, which had been the best showing since 1984, down to 4.1 percent, the same growth rate as 1999, which was revised down by a smaller 0.1 percentage point.
"Growth in 2000 declined much more than anybody thought," White House spokesman Ari Fleischer said. "There should be no mistake on when the softness in the economy began."
Describing the economy as "puttering along" and "not nearly as strong as it should be," the president said the tax cut he pushed through Congress "looks more and more wise."
"What the tax cut does in sending money back to the American working people, it provides an incredibly important boost to economic vitality and economic growth," he said in an address to the Future Farmers of America.
The Bush administration and many private economists believe the second quarter will prove to be the point of maximum danger for the economy. The administration is counting on $40 billion in tax relief now shoing up in the form of rebate checks and the aggressive credit easing of the Federal Reserve to lift the economy to higher growth rates in the second half of this year.
The Fed would have room to cut rates further because inflationary pressures have begun to abate as the economy has endured the yearlong slowdown.
An key inflation gauge tied to the GDP rose at a rate of just 1.7 percent in the second quarter, down from a 3.2 percent rate in the first quarter, and the best showing since early 1999.
However, some economists are still worried that the bigger-than-expected slowdown in the United States, which has adversely affected many other countries around the world, could still threaten a recession in this country if demand for American exports weakens further.
To fight off a possible downturn, the Fed has slashed interest rates six times this year, totaling 2.75 percentage points. Many economists believe Fed policy-makers will cut rates again at their next meeting on Aug. 21 by at least a quarter-point.
But Fed Chairman Alan Greenspan has warned that the central bank is fighting against a powerful force in the huge cutbacks U.S. companies are making in their investment plans, which had been a main source of strength driving the record economic expansion.
Consumers were the major force keeping the country out of recession. Consumer spending, which accounts for two-thirds of total economic activity, rose at an annual rate of 2.1 percent in the second quarter. While that was the slowest increase in four years, it was enough to offset the widespread weakness in other categories and keep the economy in positive territory.
Also helping was a 7.4 percent rate of increase in residential construction, a sector that has remained strong, helped by falling interest rates.
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