Economy Grows in Second Quarter

Friday, August 25th 2000, 12:00 am
By: News On 6

WASHINGTON – The U.S. economy grew at a robust annual rate of 5.3 percent in the spring, with strong investment by businesses offsetting less brisk spending by consumers.

The Commerce Department reported Friday that the increase in the gross domestic product – the nation's total output of goods and services and the broadest measure of economic health – in the April-June quarter surpassed growth in the first quarter, when the economy grew at a 4.8 percent annual rate.

The government's revised reading on GDP – based on more data than its initial calculation – showed the economy growing slightly faster than the 5.2 percent rate it estimated one month ago. The revised figure was in line with many analysts' predictions of a 5.4 percent growth rate.

In the current quarter, many analysts believe the economy has slowed to a growth rate of 3.5 percent to 4 percent.

Even with the robust growth in the second quarter, inflation pressures actually moderated. An inflation gauge tied to the GDP, and closely watched by Federal Reserve Chairman Alan Greenspan, rose at an unrevised annual rate of 2.3 percent in the second quarter, down from a 3.5 percent rate in the first quarter.

The Federal Reserve has raised interest rates six times over the last 14 months to slow the economy and keep inflation under control. On Tuesday, the Fed decided to leave interest rates unchanged, but left the door open to further rate increases should tight labor markets spark wage and price pressures down the road.

Friday's report also said that after-tax profits of U.S. corporations grew by 2.4 percent in the second quarter, down from 5.7 percent in the first quarter.

Consumer spending, which accounts for two-thirds of all economic activity, also slowed in the second quarter, rising at a 2.9 percent rate, the slowest pace since the second quarter of 1997. In the first quarter, consumer spending surged at a 7.6 percent rate, a 17-year high.

While consumer spending did cool in the spring, that was offset by strong business investment, including spending on computers and other equipment, which rose at an annual rate of 14.6 percent in the second quarter. That compared with a 21 percent rate posted in the first quarter. Businesses also increased their spending on inventories, adding to second-quarter growth.

Also contributing to growth was spending by the federal government, which rose at an annual rate of 16.9 percent in the second quarter. That compared with a 14.2 percent rate of decrease in the first quarter.

The U.S. trade deficit, however, continued to be a drag on growth. The bloated deficit subtracted 1.2 percentage points from growth in the second quarter, compared to a reduction of 0.9 percentage points in the first quarter.

All the changes show the economy growing at an annual rate of $119.7 billion in the second quarter, pushing the country's total output of goods and services to $9.3 trillion, after adjusting for inflation.