WASHINGTON -- The U.S. economy, weighed down in the second quarter by a strike at General Motors Corp. and a slowdown in exports to Asia, still was able to grow at a faster pace than previously estimated.
The gross domestic product, the total output of goods and services, rose at a revised 1.6 percent annual rate in the second quarter, the Commerce Department said yesterday. That's higher than the initial GDP estimate of a 1.4 percent gain released July 31 -- though still a shadow of the first quarter's stellar 5.5 percent growth rate.
Growth in the final two quarters of the year will probably average no better than 2.5 percent, analysts said.
"Two forces clashing" are strong consumer demand and the slowdown from the Asian turmoil, said James Chessen, chief economist at American Bankers Association in Washington. "One is going to have to dominate over the other, and I think it's going to be Asia."
U.S. stocks fell yesterday, as Russia's financial crisis sent stocks tumbling around the world. The Dow Jones industrial average dropped 357.36 points, or 4.19 percent, to close at 8,165.99. The Nasdaq fell 81.74 points, or 4.62 percent -- its biggest drop since a 7 percent decline Oct. 27 -- to 1,686.39. The Standard & Poor's 500 Index dropped 41.68 points, or 3.84 percent.
Bonds rose for the fifth time in six days, pushing 30-year yields to a record low of 5.35 percent, as the turmoil in global stock markets drove investors to the relative safety of U.S. Treasury securities.
The second-quarter GDP estimate was revised higher because more complete figures showed higher consumer spending on services and a narrower June trade deficit, which offset slower growth in business inventories, government analysts said. The report also showed that corporate earnings crept higher, and inflation remained under wraps.
Even after the revision, second-quarter growth was the weakest since a 0.4 percent rise in the second quarter of 1995.
Exports fell 7.4 percent at an annual rate in the second quarter, the second consecutive quarterly drop. In the first quarter, exports declined 2.8 percent. Imports rose 10.0 percent after increasing 15.7 percent in the first quarter.
Also yesterday, the Labor Department said the number of U.S. workers filing for jobless claims unexpectedly fell 6,000 last week to 297,000. That surprised analysts, who were forecasting a rise of 1,000, and suggests employment growth has yet to slow.
"We're still seeing evidence of strong consumer spending, a booming housing market, and we're going to get a rebound from the GM strike," said Scott Brown, an economist at Raymond James & Associates in St. Petersburg, Fla. Offsetting those positives will be weakness in exports and an increase in imports, he said.
Inflation was subdued in the second quarter, the GDP report showed. The price deflator, a measure of price increases followed by many investors, grew at a revised 0.8 percent annual rate in the quarter, down from an initial estimate of an increase at a 0.9 percent pace.
The slowdown from the first quarter took a toll on U.S. corporate profits. Second-quarter after-tax earnings -- reported for the first time yesterday -- increased 0.3 percent after falling 1.6 percent in the first quarter, the Commerce Department said.
The Asian crisis is cutting export demand, and the strong dollar is making foreign-made goods more attractive -- at least on the basis of price -- to U.S. consumers, also squeezing manufacturers' profits.
Adjusted for inflation, the GDP grew at a seasonally adjusted rate of $7.495 trillion in the second quarter, compared with $7.465 trillion in the first quarter. Before adjusting for inflation, the GDP expanded at an annual rate of $8.435 trillion in the second quarter, compared with $8.384 trillion in the first quarter.
Pub Date: 8/28/98