Instant view: Economic growth slowed in second quarter

NEW YORK (Reuters) - U.S. economic growth slowed in the second quarter as a capital investment drive by businesses saw imports increasing at their fastest pace since the first quarter of 1984, a government report showed on Friday.

KEY POINTS: * Gross domestic product expanded at a 2.4 percent annual rate, the Commerce Department said in its first estimate, after a revised 3.7 percent growth pace in the January-March quarter. * Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 2.5 percent rate in the second quarter. * The government had previously estimated a 2.7 percent growth rate for the first three months of this year. * The economy, which is digging out of its longest and deepest recession since the 1930s, has now grown for four straight quarters. However, growth has been too tepid, making little impact on a high unemployment rate.

COMMENTS:

MARK PAWLAK, MARKET STRATEGIST, KEEFE BRUYETTE & WOODS, NEW

YORK:

"The headline is a disappointment. The initial market reaction is negative.

"As the earnings season winds down, the focus will shift from the micro to the macro. The economic numbers have not been great. We seem to have given a pass to the housing market and the jobless claims which have been pretty horrible.

"The patience of the voters is limited. The patience with the Federal Reserve is also under a tremendous pressure as well. But it seems that the Fed has done what it could do more with monetary stimulus."

ADDISON ARMSTRONG, DIRECTOR OF MARKET RESEARCH, TRADITION

ENERGY, STAMFORD, CONNECTICUT:

"We were already down following the equities market that was already low even before the GDP report came out. The S&P dropped 5 points after the report and this will definitely put a downward pressure on crude. The dollar has given up its early gain and that is also not a good sign for crude.

"The market has good technical resistance, currently below $79. Support is down to $76.50 and I expect that we will pretty easily get there today. After that we might hit the low of the week at $75.90."

JOSEPH BATTIPAGLIA, MARKET STRATEGIST, STIFEL NICOLAUS,

YARDLEY, PENNSYLVANIA:

"It was a number we (expected). The consumer is nowhere to be found; stimulus money found its way into fixed investment... We're down about 1 percent (in stocks futures), and I can't find any other reason for it but GDP."

SUBODH KUMAR, CHIEF INVESTMENT STRATEGIST, SUBODH KUMAR &

ASSOCIATES, TORONTO:

"The concern in the markets has been that the trend is toward slower growth and less of a bounce off the bottom that you typically get, and I think this reinforces that.

"While all the earnings have been good, I think the markets may test the July lows ... but probably not go below that.

"This going to reinforce the sense people have that yes companies have cut costs, yes that's has helped earnings, but the revenue line at some point has to get better and these GDP numbers are not moving in that direction."

ALAN LANCZ, PRESIDENT, ALAN B. LANCZ & ASSOCIATES INC., TOLEDO,

OHIO:

"Basically it's what we expected, the market's a little bit disappointed but all in all I don't think it's as bad as what the market's initial reaction indicated."

"We still have to see if this is a trend of slower growth and continued lesser confidence, it's going to be very difficult for the market to break through the trading range in either direction."

"Once you're in the higher end of the range like we are now, you have to beat consensus, whether it's earnings or guidance or these economic figures."

"To get that extra catalyst to boost through resistance, it's a situation where you have to have some surprisingly good numbers on the upside. It would be hard to do that without employment data, you really need that significant beat on consensus numbers when you're at the higher end of the range."

"Expectations were so low 30 days ago that it's almost a contrarian type, whatever the numbers were they'd bring in buyers. Now, on the higher end, it's the opposite."

MARK VITNER, SENIOR ECONOMIST, WELLS FARGO SECURITIES,

CHARLOTTE, NORTH CAROLINA:

"The economy has been losing momentum, and most of the strength that we saw in the second quarter was in the front end of the quarter. We got a big lift from stimulus in the second quarter -- there were appliance rebates for energy-efficient appliances, and we had the home buyer tax credit, which boosted residential investment and also boosted the services component of personal consumption expenditures. With stimulus spending winding down and inventories having risen, it looks like expectations for the third quarter will be reduced because of this. To me it looks like most folks will be coming in with forecast for GDP in the current quarter that is under two percent.

"That puts us pretty close to a double-dip. With the economy growing at less than two percent, the unemployment rate is likely to be rising, and rising unemployment at a time where we're taking away the stimulus for housing means that we are likely to see home sales that are going to be weaker and foreclosures are likely to increase and home prices are likely to come back down. And it also means that inflation is likely to continue to moderate."

RON WEINER, PRESIDENT AND CEO OF RDM FINANCIAL GROUP IN

WESTPORT, CONNECTICUT:

"It's a very scary American economy when we spend so many hundreds of billions of dollars in stimulus and all we are left with is debts to pay."

"The growth rate is weak. The number certainly could have been worse, but it doesn't bode well for employment."

BORIS SCHLOSSBERG, DIRECTOR OF FX RESEARCH, GFT FOREX, NEW

YORK:

"This number was hyped up all week and was a bit anti-climactic. Also the GDP number is a look at the past. But it's not helpful to the risk trade or the dollar-yen, since we're seeing across all U.S. data releases signs that the U.S. economy really is stuck in the mud. The real important number today will be Chicago PMI because it offers a glimpse of the future. If it doesn't give us a boost of optimism, I think it's going to be very difficult to rally and people are going to get more risk averse. You could see euro go below $1.30 and the dollar fall below 86 yen."

LEE OLVER, MANAGING DIRECTOR OF FINANCIAL STRATEGIES, MADISON

WILLIAMS & CO., HOUSTON:

"The anticipated slowdown in the economy is happening. The conceivable scenario is that all the impact from the federal stimulus will continue late this year into early next year.

"Will business investment fall off a cliff next quarter if domestic consumer spending continues to flag?

"I think this is bond positive because slower growth and consumer spending going forward will mean weaker inflationary pressure."

JACK ABLIN, CHIEF INVESTMENT OFFICER, HARRIS PRIVATE BANK,

CHICAGO:

"I'm disappointed. The overall number was lower of course, on a lower personal consumption number. That means what we suspected is true: spending is slowing on weaker than expected job gains. In addition, the deflation number is higher than expected, though it's unclear if that's a positive or a negative for us.

"This number will cast a pall on today's trading. My sense is that we're operating in a weakening environment without the help of a lot of stimulus. If the stimulus package was a box of doughnuts dumped on the economy, we only have one or two doughnuts left in the box."

MARKET REACTION: STOCKS: U.S. stock index futures add to losses BONDS: U.S. Treasury debt prices add to gains DOLLAR: U.S. dollar pares gains versus euro