Friday, August 1, 2008

US Economy Picks Up In Second Quarter

Source : The Straits Times, Aug 1, 2008

1.9% growth a modest spurt amidst steepest slump in housing since 1981

WASHINGTON - THE US economy, which shrank during the closing months of last year for the first time in six years, hurt by the steepest slump in housing since 1981, bounced back to record modest growth this year.

Growth resumed in the first quarter of this year, with gross domestic product (GDP) rising at a 0.9 per cent rate that accelerated to 1.9 per cent in the second quarter as government stimulus payments began to flow, reported the US Commerce Department yesterday.

The first-quarter GDP figures helped the US economy avoid back-to-back quarters of decline that would have met a popular definition of recession.

The Commerce Department also sharply revised its estimate for fourth-quarter performance to show that GDP had contracted 0.2 per cent - rather than grown 0.6 per cent as previously reported.

It was the first three- month period in which GDP shrank since during the last official recession in the United States, when growth contracted by 1.4 per cent in the third quarter of 2001.

Following the report, Wall Street opened lower, with the Dow Jones Industrial Average falling 90.46 points, or 0.78 per cent, to 11,493.23.

The Commerce Department issued benchmark revisions covering a three-year period, 2005-2007, that showed the economy on a consistently deeper and declining trajectory than was previously recognised.

GDP grew 2.9 per cent in 2005 instead of 3.1 per cent, 2.8 per cent rather than 2.9 per cent in 2006, and 2 per cent in 2007 instead of 2.2 per cent as previously reported, it said.

Before the department's report, the International Monetary Fund on Wednesday said the US economy is in unchartered waters, with growth likely to be below potential through the middle of next year before slowly recovering.

With US home prices falling sharply across the country and dragging down the economy, the IMF said monetary policy should remain on hold for now, even though inflation concerns are rising.

'Concerns about activity would need to be much more pronounced to justify a more accommodative stance,' the IMF said in a report outlining its consultations with the US Treasury and the Federal Reserve.

At the same time, it said: 'The case for a pre-emptive hike in policy rates, as markets now anticipate, is...unclear.'


The IMF also said the US dollar's decline has moved the currency closer to medium-term equilibrium, but the fund's staff estimated that its value is still somewhat on the strong side. -REUTERS


Close shave

REBOUND: The US economy has recovered from a plunge caused by the housing slump. -- PHOTO: AFP






# The first-quarter gross domestic product figures have helped the US economy avoid back-to-back quarters of decline that would have met a popular definition of recession.

# Last year's final quarter was the first three-month period in which GDP shrank since during the last official recession, when growth fell by 1.4 per cent in the third quarter of 2001.

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