Nation/World


Economic Growth Slows Burst Of Consumer Spending Keeps Nation Out Of Recession

The economy slowed in the spring to its weakest growth in nearly four years but managed to avoid a brush with recession due to a surge in consumer spending.

Analysts said they expect moderate recovery at best for the remainder of the year and did not rule out further interest-rate cuts to stimulate expansion.

The Commerce Department said Wednesday that gross domestic product in the second quarter grew at a 1.1 percent annual rate, the worst showing since the early days of the current expansion, which began in 1991.

And in fact, the department said, growth may be weaker using a new system of calculations that the government is phasing in over the next four months.

The new method, designed to measure price changes with better accuracy, showed that GDP increased only 0.5 percent in the April-June quarter. The revised system formally will replace the more conventional data in December.

Financial markets took the news in stride. The Dow Jones industrial average closed down 3.87 points. The yield on the key 30-year Treasury bond was little changed at 6.69 percent.

Analysts said there is little reason to expect robust improvement in the economy this year, even though the latest figures for GDP the total value of all goods and services produced in the United States - were revised upward from a month-old estimate.

“Consumption obviously was stronger than expected,” said economist Michael Evans, who heads a forecasting service in Boca Raton, Fla. “But the economy is fairly weak. This didn’t change that.”

Sung Won Sohn of Norwest Corp., a bank holding company in Minneapolis, said the jump in consumer spending was the result of price slashing by businesses eager to reduce excess stockpiles of goods.

“It just means that sales were borrowed from the future,” he said. Sohn said there is room for Federal Reserve Chairman Alan Greenspan and his colleagues to lower short-term interest rates.

The economy has lost steam since late last year, when it was growing at the fastest rate in a decade. GDP increased at a 2.7 percent annual rate in the first three months of 1995, barely more than half as strong as the fourth quarter last year.

The Commerce Department also reported that after-tax corporate profits grew less rapidly in the second quarter, rising 1.5 percent after increasing 3.8 percent in the first three months of the year.

Consumer spending, which accounts for about two-thirds of GDP, increased at a $30.4 billion rate in the second quarter, compared to $14.3 billion in the first quarter.


 
Tags: statistics

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