Economic growth rebounds in second quarter
WASHINGTON (Reuters) - U.S. economic growth rebounded during the second quarter to its strongest pace since the beginning of last year on a surge in business investment, more government spending and a better trade performance, the Commerce Department reported on Friday.
Gross domestic product that measures total output within U.S. borders gained at a 3.4 percent annual rate -- the fastest since 4.8 percent in the first quarter of 2006 -- after barely growing at a downwardly revised 0.6 percent pace in the first quarter. Second-quarter growth exceeded Wall Street economists' forecasts for a 3.2 percent rate of increase.
Better economic performance was not enough to ward off another bad day on the stock market, though, as worry about a riskier outlook for takeover financing cast a dark shadow. Oil prices also rose, a further damper on the outlook.
The Dow Jones industrial average .DJI fell 207.53 points to end at 13,266.04 and the Nasdaq Composite Index .IXIC lost 37.10 points to close at 2,562.24. It was the second straight day of heavy losses.
President George W. Bush and his top economic advisors tried to talk up prospects early, meeting at the White House before sending a brace of advisers before television cameras to say the U.S. and global economies were strong.
But investors, worried that access to credit might tighten in future, fled stocks and drive bond prices higher. Benchmark 10-year U.S. Treasury notes rose 9/32 and their yield, which moves in the opposite direction to the price, eased to 4.77 percent in late trading.
The GDP data showed the business sector picking up some of the slack left by consumers who cut back on their spending.
"Consumers are clearly taking a breather but other sectors have more than made up for it," said Richard DeKaser, chief economist for National City Corp. in Cleveland, but warned the second-quarter pace of expansion was unlikely to continue.
"We should see slower growth going forward. The economy is basically on a 2-percent growth trend," he added.
A separate report indicated that while consumers might be curbing spending, they did not seem fearful about the future.
A Reuters/University of Michigan Survey of Consumers said the final July reading on its consumer sentiment index was 90.4, a touch below the median forecast of 91.2 and the preliminary July reading of 92.4, which was a six-month high. Nearly half of those surveyed expected favorable economic prospects to last into mid-2008.
Treasury Secretary Henry Paulson, appearing on CNBC television after the meeting with Bush, repeated that problems with bad loans in the subprime mortgage area were "largely contained" and that Thursday's global market losses were just a "repricing" of risks.
"We have a strong economy, a strong economy globally, so I take real comfort in that," Paulson said.
The GDP report contained encouraging news on the inflation front, as so-called core prices that exclude food and energy items gained at a surprisingly low 1.4 percent annual rate, the lowest in four years since 1.3 percent in the second quarter of 2003.
Economists had forecast a 2 percent rate of advance in core prices, and hoped the positive GDP performance would calm financial markets roiled by fears of a credit crunch. Continued...
