(Corrects 1st paragraph to show growth in consumer spending
was slower, not that spending was lower)
* Second-quarter growth slows to 2.4 pct on imports
* First-quarter growth revised up to 3.7 pct vs 2.7 pct
* Import growth biggest since first-quarter 1984
* Business investment largest rate since 2006
(Adds manufacturing and confidence data, updates markets)
By Lucia Mutikani
WASHINGTON, July 30 U.S. economic growth slowed
in the second quarter as companies invested heavily in
equipment from abroad and the pace of consumer spending eased,
raising concerns about the recovery in the rest of 2010.
Gross domestic product expanded at a 2.4 percent annual
rate, the Commerce Department said in its first estimate on
Friday, after an upwardly revised 3.7 percent growth pace in
the January-March quarter.
Financial markets 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 from a previously estimated
a 2.7 percent rate for the first three months of this year.
"The anticipated slowdown in the economy is happening. Will
business investment fall off a cliff next quarter if domestic
consumer spending continues to flag?" said Lee Olver, managing
director of financial strategies at Madison Williams & Co. in
A second report showed business activity in the nation's
Midwest region expanded more than expected this month on strong
orders. The Institute for Supply Management-Chicago business
barometer rose to 62.3 from 59.1 in June and above market
forecasts for reading of 56.5. [ID:nN30265688]
Separately, consumer sentiment dropped this month to a
nine-month low, according to Thomson Reuters/University of
Michigan's Surveys of Consumers. [ID:nN30173680]
U.S. stocks fell on the growth and confidence data, while
prices for safe have government bonds rose. The U.S. dollar
fell against the yen.
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.
The sluggish economy and a 9.5 percent unemployment rate
are eroding President Barack Obama's popularity and dimming
Democrats' prospects in November's mid-term elections.
A Reuters-Ipsos poll this week showed only a 34 percent
approval of Obama's handling of the economy and jobs compared
to 46 percent who deemed it unsatisfactory.
This is a sharp decline from early 2009, shortly after he
took office, when more than half of those surveyed approved of
Obama's handling of the worst financial crisis in decades.
For graphic on U.S. second-quarter GDP see:
For graphic on U.S. manufacturing trends see:
For Reuters Insider show on GDP see:
Growth in the last quarter was held back by a 28.8 percent
surge in imports, the fastest increase in 26 years, which
eclipsed a 10.3 percent rise in exports. The widening trade
deficit lopped off 2.78 percentage points from growth, the
largest subtraction since the third quarter of 1982.
Outside the trade sector, however, there were some
encouraging details in the report. Business investment rose at
a 17 percent rate, the largest increase since the first quarter
of 2006, after a 7.8 percent pace during the prior period.
Spending on equipment and software posted its strongest
growth since the third quarter of 1997, while investment on
structures rose for the first time since the third quarter of
2008, likely boosted by a rise in oil and gas drilling.
Economists worried businesses might have taken an overly
optimistic view of the the recovery, given the pull back in
consumer spending. They expect spending to slow down in the
"It's good to see they are putting their money into the
economy, but just how sustainable are those numbers," said
Joel Naroff of Naroff Economic Advisors in Holland,
"Businesses are making up for lost ground right now. Once
they have made up for it and if they are looking at a more
sluggish expansion, I think they will slow their investment
Growth during the second quarter was also supported by new
home construction, which surged at a 27.9 percent rate after
being a drag on GDP in the first quarter, reflecting a spurt in
building activity spurred by a popular home-buyer tax credit
that has since expired.
The rate of increase was the biggest since the third
quarter of 1983. Residential investment had contracted at a
12.3 percent rate in the first quarter.
But there were some areas of concern. The report showed
consumer spending was not robust. Consumer spending grew at a
1.6 percent rate in the second quarter after increasing at a
revised 1.9 percent pace in the first quarter.
Consumer spending, which normally accounts for 70 percent
of U.S. economic activity, had previously been estimated to
have grown at a 3 percent rate in the first quarter. Spending
added 1.15 percentage points to GDP last quarter.
With so much domestic demand sated by overseas production,
U.S. businesses found stocks piling up on their shelves.
Inventories increased $75.7 billion in the second quarter after
a $44.1 billion rise in the first three months of the year.
Stripping out the rise in inventories, which could dampen
future production, the economy would have expanded at only a
1.3 percent rate in the second quarter.
Separate reports showed current business conditions in New
York City fell in July to its lowest level in 11 months
[ID:nNLLTIE6AE], while employment costs in the second quarter
rose a mild 0.5 percent as the soft economy kept a lid on wages
and benefit costs slowed. [ID:nLLAUIE62P]
(Editing by Neil Stempleman)