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U.S. Economy Has Spring in Its Step: GDP Rises 5.3%

August 26, 2000|From Associated Press

WASHINGTON — The U.S. economy grew at a robust annual rate of 5.3% in the spring with strong investment by American 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% 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% rate it estimated one month ago. The revised figure was in line with many analysts' predictions of a 5.4% growth rate.

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

In a second report, the National Assn. of Realtors reported that existing-home sales plunged 9.8% in July to a seasonally adjusted annual rate of 4.79 million units, as higher mortgage rates cut into demand.

And, in a speech in Jackson Hole, Wyo., Federal Reserve Chairman Alan Greenspan pledged to defend globalization while cautioning that opposition to the increased connections between countries would likely gain strength in the event of an economic downturn.

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

Friday's report also said that after-tax profits of U.S. corporations grew by 2.4% in the second quarter, down from 5.7% 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% rate, the slowest pace since the second quarter of 1997. In the first quarter, consumer spending surged at a 7.6% rate, a 17-year high.

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

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

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