By MOTOKO RICH
Published: August 27, 2010
The government lowered its estimate of economic growth in the second quarter to an annual rate of 1.6 percent, after originally reporting last month that growth in the April-June period was 2.4 percent.
The revision is a significant slowdown from the annual rate of 3.7 percent in the first quarter and 5 percent in the last three months of 2009.
The news came at the end of a week that showed the economic retrenchment that began in the second quarter has spilled over into the summer. Existing home sales in July were down to their lowest level in a decade, and sales of new homes last month were at their lowest level since the government began tracking such data in 1963. Orders for large factory goods, excluding the volatile transportation sector, dropped in July, indicating that recovery in the manufacturing sector also was stalling.
With such grim reports, economists are now concerned that the outlook for job creation, which has been spluttering all summer, could deteriorate further. Companies and consumers tend to be spooked by bad news, and market analysts and economists worry that faltering confidence could cause employers to hold back on hiring.
“When you get a downshift in growth there is a risk that it will feed on itself,” the chief economist at MF Global, James F. O’Sullivan, said. “The question now is to what extent has the improving trend just been temporarily set back or has it really been short-circuited.” (反射理論)
In a speech Friday morning, the chairman of the Federal Reserve, Ben S. Bernanke, said that he expected the economy to continue on a growth track, “albeit at a relatively modest pace.”
He also indicated that the Fed would be willing to resume large purchases of longer-term debt if the economy worsened. Such moves could have the effect of lowering mortgage rates. Although rates are already at historic lows, economists suggest that lower rates could eventually spur some home-buying or at least refinancing, which gives households more cash to spend.
Meanwhile, a closely watched survey by the University of Michigan and Thomson Reuters showed that consumer sentiment ticked up marginally in August from July, but remained well below levels seen during the previous six months.
The bulk of the downgrade in the second-quarter G.D.P. was because government analysts had assumed that American companies added more inventory to their warehouse shelves than they actually did. The adjustment also took into account a sharp rise in imports, leading to a wider-than-estimated trade deficit.
Economists polled by Bloomberg News had been expecting the second-quarter growth figure to be revised down to 1.4 percent.
Inventories, originally reported to have grown by $75.7 billion, actually grew by $63.2 billion. Some economists pointed to a silver lining in the figure. Because companies have kept inventories relatively low, “if demand was to take off, they would have to hire additional workers and ramp up production,” said Omair Sharif, United States economist at the Royal Bank of Scotland. “So the fact that businesses did not accumulate enough inventories sets the stage for a much stronger pickup in employment and hours worked in the future, if demand picks up.”
For now, companies are not building up inventories. “There is some hesitancy out there now about building up any more than they have to,” said Thomas J. Duesterberg, chief executive of the Manufacturers Alliance-MAPI, a trade association.
Imports, which were first reported to have grown at an annual rate of 28.8 percent, the biggest jump in a quarter-century, grew by 32.4 percent, compared with a much lower gain of 9.1 percent in exports. Mr. Duesterberg said he expected exports to grow further in the second half of the year.
What strength there had been in the original growth number came from business investment in items that included office buildings, equipment and software. The revised number showed that such spending rose at an annual rate of 17.6 percent, not much different from the 17 percent estimated in the initial second-quarter report.
Consumer spending, which economists often look to as a primary indicator of recovery, grew 2 percent. That was a slightly better rate than the Commerce Department originally said last month when it reported that consumption grew at an annual rate of 1.6 percent in the second quarter, and just above the 1.9 percent increase in the first quarter.
Optimists pointed to that bump in consumer spending as a sign that the recovery, while weak, still had legs.
Bernard Baumohl, chief global economist at the Economic Outlook Group, said that he expected the Fed to take action and for companies, now sitting on large cash reserves, to eventually start hiring again, moves that he believed would translate into more robust consumer spending.
But more bearish analysts said there was little evidence that the economy was recovering in anything but name only. With more recent indicators showing a shrinking housing market, dwindling orders for factory goods and rampant discounting among retailers, some economists saw far more clouds than sun.
“Given all the stimulus and all the steroids and all the medication, the economy should be ripping right now,” said David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates. “The fact that it’s not should lead people to believe that this is certainly not a common recession.”
Mr. Rosenberg pointed out that during the Great Depression, the economy experienced several quarters of official growth, despite the presence of bread lines and rampant unemployment. Now, he said, “it seems the diagnosis is pretty clear, but people don’t like to talk about it, because Depression depresses people.”
Economists have been revising their forecasts for growth in the second half, with Goldman Sachs now projecting annual growth of 1.5 percent. Ben Herzon, a senior economist at Macroeconomic Advisers, a forecasting group, said the firm had taken its estimate for third-quarter growth down to 1.7 percent from 2.5 percent at the beginning of July.
Mr. Herzon said that he was not expecting a double-dip back into recession, however. “It’s difficult to point to a shock that would be bad enough to put the economy back into a recession,” he said. “I just think it means that this recovery is going to be slower and more painful than we originally expected.”
Published: August 27, 2010
The government lowered its estimate of economic growth in the second quarter to an annual rate of 1.6 percent, after originally reporting last month that growth in the April-June period was 2.4 percent.
The news came at the end of a week that showed the economic retrenchment that began in the second quarter has spilled over into the summer. Existing home sales in July were down to their lowest level in a decade, and sales of new homes last month were at their lowest level since the government began tracking such data in 1963. Orders for large factory goods, excluding the volatile transportation sector, dropped in July, indicating that recovery in the manufacturing sector also was stalling.
With such grim reports, economists are now concerned that the outlook for job creation, which has been spluttering all summer, could deteriorate further. Companies and consumers tend to be spooked by bad news, and market analysts and economists worry that faltering confidence could cause employers to hold back on hiring.
“When you get a downshift in growth there is a risk that it will feed on itself,” the chief economist at MF Global, James F. O’Sullivan, said. “The question now is to what extent has the improving trend just been temporarily set back or has it really been short-circuited.” (反射理論)
In a speech Friday morning, the chairman of the Federal Reserve, Ben S. Bernanke, said that he expected the economy to continue on a growth track, “albeit at a relatively modest pace.”
He also indicated that the Fed would be willing to resume large purchases of longer-term debt if the economy worsened. Such moves could have the effect of lowering mortgage rates. Although rates are already at historic lows, economists suggest that lower rates could eventually spur some home-buying or at least refinancing, which gives households more cash to spend.
Meanwhile, a closely watched survey by the University of Michigan and Thomson Reuters showed that consumer sentiment ticked up marginally in August from July, but remained well below levels seen during the previous six months.
The bulk of the downgrade in the second-quarter G.D.P. was because government analysts had assumed that American companies added more inventory to their warehouse shelves than they actually did. The adjustment also took into account a sharp rise in imports, leading to a wider-than-estimated trade deficit.
Economists polled by Bloomberg News had been expecting the second-quarter growth figure to be revised down to 1.4 percent.
Inventories, originally reported to have grown by $75.7 billion, actually grew by $63.2 billion. Some economists pointed to a silver lining in the figure. Because companies have kept inventories relatively low, “if demand was to take off, they would have to hire additional workers and ramp up production,” said Omair Sharif, United States economist at the Royal Bank of Scotland. “So the fact that businesses did not accumulate enough inventories sets the stage for a much stronger pickup in employment and hours worked in the future, if demand picks up.”
For now, companies are not building up inventories. “There is some hesitancy out there now about building up any more than they have to,” said Thomas J. Duesterberg, chief executive of the Manufacturers Alliance-MAPI, a trade association.
Imports, which were first reported to have grown at an annual rate of 28.8 percent, the biggest jump in a quarter-century, grew by 32.4 percent, compared with a much lower gain of 9.1 percent in exports. Mr. Duesterberg said he expected exports to grow further in the second half of the year.
What strength there had been in the original growth number came from business investment in items that included office buildings, equipment and software. The revised number showed that such spending rose at an annual rate of 17.6 percent, not much different from the 17 percent estimated in the initial second-quarter report.
Consumer spending, which economists often look to as a primary indicator of recovery, grew 2 percent. That was a slightly better rate than the Commerce Department originally said last month when it reported that consumption grew at an annual rate of 1.6 percent in the second quarter, and just above the 1.9 percent increase in the first quarter.
Optimists pointed to that bump in consumer spending as a sign that the recovery, while weak, still had legs.
Bernard Baumohl, chief global economist at the Economic Outlook Group, said that he expected the Fed to take action and for companies, now sitting on large cash reserves, to eventually start hiring again, moves that he believed would translate into more robust consumer spending.
But more bearish analysts said there was little evidence that the economy was recovering in anything but name only. With more recent indicators showing a shrinking housing market, dwindling orders for factory goods and rampant discounting among retailers, some economists saw far more clouds than sun.
“Given all the stimulus and all the steroids and all the medication, the economy should be ripping right now,” said David Rosenberg, chief economist and strategist for Gluskin Sheff & Associates. “The fact that it’s not should lead people to believe that this is certainly not a common recession.”
Mr. Rosenberg pointed out that during the Great Depression, the economy experienced several quarters of official growth, despite the presence of bread lines and rampant unemployment. Now, he said, “it seems the diagnosis is pretty clear, but people don’t like to talk about it, because Depression depresses people.”
Economists have been revising their forecasts for growth in the second half, with Goldman Sachs now projecting annual growth of 1.5 percent. Ben Herzon, a senior economist at Macroeconomic Advisers, a forecasting group, said the firm had taken its estimate for third-quarter growth down to 1.7 percent from 2.5 percent at the beginning of July.
Mr. Herzon said that he was not expecting a double-dip back into recession, however. “It’s difficult to point to a shock that would be bad enough to put the economy back into a recession,” he said. “I just think it means that this recovery is going to be slower and more painful than we originally expected.”
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