US GDP growth was solid going into credit turmoil
WASHINGTON (AFP) — The US economy carried strong momentum into the mid-year credit storm, expanding at a 3.8 percent pace in the second quarter even as housing remained weak, a revised estimate showed Thursday.
The final reading for gross domestic product (GDP) was reduced from last month's estimate of 4.0 percent, the Commerce Department said, but still appeared robust after the sluggish 0.6 percent pace of the first quarter.
The figure was roughly in line with Wall Street estimates of a 3.9 percent annualized growth rate. Yet analysts see the report as "old" data that have minimal significance in view of the housing market and credit troubles that have emerged in the past few months.
More recent data highlight the woes facing the world's biggest economy.
A separate report Thursday showed sales of new US homes slid 8.3 percent in August to their lowest level in seven years, with prices falling to 2005 levels.
The home sales report "provides further evidence that the housing market continues to struggle," said Paul Ferley, economist at RBC Financial Group.
"The weakness in housing could spread to consumer spending via faltering household net worth."
"The housing market outlook continues to deteriorate as home sales fall sharply, inventories remain elevated and home prices decline," Lehman Brothers said in a research note.
"We expect continued pain ahead and believe the housing market is, sadly, far from the bottom."
The Federal Reserve last week cut key interest rates by half a percentage point, saying the downside risks to the economy have increased.
Brian Bethune, economist at the research firm Global Insight, said the GDP report indicates that "economic fundamentals outside the housing sector were impressive (as) corporate profits accelerated and business investment (were) revised up."
But Bethune sees further soft conditions going forward with growth of perhaps 2.5 to 3.0 percent slowing to below two percent in the fourth quarter.
"Consumer confidence appears now to be buckling under the weight of much slower employment growth and further downward pressure on the housing market -- this is expected to take a bite out of consumer spending in the fourth quarter," he said.
The latest report showed GDP growth accelerated from a weak 0.6 percent pace in the first quarter, but analysts say both figures are statistical flukes and that the underlying pace of growth is somewhere between the two.
"Today's revisions don't change our view for (full-year) 2007 GDP growth close to 1.9 percent with a significant deceleration in the second part of the year," said Nathalie Dezeure at Natixis.
The Commerce Department said the downward revision to growth reflected an increase in imports of both goods and services, which subtract from GDP growth. Imports fell a revised 2.7 percent in the quarter, not as steep a decline as the 3.2 percent decline estimated earlier. Exports rose 7.5 percent in the second quarter.
Housing was the main drag on growth. Spending on residential investment declined 11.8 percent in the second quarter, after plunging 16.3 percent in the first quarter.
The second-quarter GDP, or total output of goods and services, represents on an annual basis an economy of 13.768 trillion dollars, up 6.6 percent before adjustment for inflation.
