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2009-08-28 05:06:30
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics
Writer
WASHINGTON . Evidence is mounting that the longest recession since World War II
is losing its grip on the U.S. economy.
The latest hint is due Friday when the government releases data on consumer
spending and income for July.
Personal spending is expected to have posted a modest gain last month, driven
higher by the popular Cash for Clunkers program. Economists surveyed by Thomson
Reuters expect personal spending rose 0.2 percent in July after a 0.4 percent
gain in June.
Economists believe that personal incomes, the fuel for future spending
increases, probably rose 0.2 percent as well, following a 1.3 percent decline
in June.
On Thursday, a report confirmed that the economy shrank at an annual rate of
just 1 percent in the spring.
Many analysts say growth likely returned in the current quarter. Smaller dips
in consumer spending and other areas during the April-June period led some
economists to raise their forecasts for the July-September quarter.
But with unemployment aid claims stubbornly high, Americans may benefit little
from a recovery if jobs remain scarce and spending stays too low to fuel a
strong rebound.
The Commerce Department estimated that the U.S. gross domestic product, the
broadest gauge of economic health, shrank at an annual rate of 1 percent in the
second quarter. The new estimate of the nation's output of goods and services
was the same as an earlier estimate released last month.
The negative figure marks a record fourth consecutive quarterly decline. But it
was far smaller than the nosedive the economy had taken during the previous two
quarters.
Businesses did slash inventories at an even greater rate than had been expected
in the spring. But economists were encouraged by upward revisions to consumer
spending, exports and housing construction. Analysts had expected the
second-quarter economic figure to show a drop of 1.5 percent.
"The big surprise in this report was that there was enough spending in the
consumer sector and elsewhere to offset all the loss from inventory
reductions," said Nigel Gault, chief U.S. economist at IHS Global Insight.
Consumer spending, which accounts for about 70 percent of total economic
activity, fell at an annual rate of 1 percent in second quarter. It was a
slight improvement from the 1.2 percent decline reported last month.
Gault predicted the economy will gain momentum in the current quarter and final
three months of this year as businesses switch from trimming stockpiles to
rebuilding inventories. He expects the GDP to jump to above 3 percent in the
July-September quarter, boosted by the Cash from Clunkers auto program.
Growth likely will remain around 3 percent in the fourth quarter, Gault said.
But then it could slip in the first half of next year as the support from
inventory rebuilding begins to fade. Consumers, faced with bleak job prospects,
won't likely be able to take up the slack, he said.
Unemployment is not expected to peak until next spring, probably somewhere
above 10 percent. The jobless rate is now 9.4 percent.
White House economic adviser Christina Romer earlier this week said the
unemployment rate is likely to hit 10 percent this year. Economists think the
unemployment rate will inch back up to 9.5 percent for August, with 220,000
more jobs lost, down a bit from 247,000 in July. That report is scheduled for
release next week.
The 1 percent dip in GDP in the April-June quarter followed declines of 6.4
percent in the first quarter and 5.4 percent in the final three months of 2008,
the sharpest back-to-back declines in a half-century. The four straight
quarterly declines in GDP mark the first time that has occurred on government
records dating to 1947.
The recession that began in December 2007 is the deepest as measured by the
drop in GDP, which is down 3.9 percent from its previous peak.
Even though economists expect the economy to start growing again in the current
quarter, signaling the end of the recession, that won't mean the end of job
losses. Businesses likely will continue to keep tight control over labor costs
until they see more evidence that the recovery will not falter.
Some analysts worry the country could face a double-dip recession in which
growth returns for a while, only to falter again as beleaguered consumers
remain reluctant to increase spending.
First-time unemployment claims fell to a seasonally adjusted 570,000, from an
upwardly revised 580,000 the previous week, the Labor Department said Thursday.
The number of those continuing to claim benefits dropped to 6.13 million from
6.25 million, the lowest level since early April.
The weekly figures remain far above the roughly 325,000 claims that analysts
say is consistent with a healthy economy. New claims last fell below 300,000 in
early 2007.
Federal Reserve Chairman Ben Bernanke said last week that the economy appeared
to be "leveling out" and was likely to begin growing again soon. President
Barack Obama appointed Bernanke to another four-year term Tuesday.