U.S. Economic Expansion Displays Steady Strength
The U.S. economy grew at a solid 3.4% annualized rate in the second quarter, the Commerce Department said Friday in a report suggesting that output and job creation would speed up as businesses replenished depleted inventories of goods.
The government's initial estimate of growth in gross domestic product met economists' expectations but fell short of the first quarter's 3.8% pace and the revised 4.2% growth posted for all of last year.
But it was the ninth straight quarter the economy exceeded its long-term growth rate of about 3%. And although the nation can't match China's gazelle-like 9.5% clip, it is outperforming most other industrialized nations and topping average growth during the booming 1990s.
And analysts said the economy was actually stronger than it appeared, as a sharp drawdown of inventories during the quarter depressed the headline growth number.
"The economy continues to be extremely resilient in the face of Federal Reserve tightening and almost $60-a-barrel oil prices," said Steven A. Wood, chief economist at Insight Economics in Danville, Calif.
The Bush administration lauded the report as evidence that its economic policies were working.
"America's economy is on the right path," Treasury Secretary John W. Snow said.
The report showed broad strength. Business spending surged 9% after jumping 5.7% in the January-to-March quarter. Consumer spending rose 3.3%, down from the previous quarter's 3.5% but still strong in the face of gasoline price shocks.
Exports also grew while imports shrank, narrowing the trade deficit and making trade a positive contributor to gross domestic product for the first time in two years.
With a relatively weak dollar making U.S. exports cheaper, "we are in a more competitive position against many countries," said Gary Thayer, chief economist at brokerage A.G. Edwards. "This is the first of maybe several quarters of good trade numbers."
Most notable in the report was a sharp annualized decline of $6.4 billion in inventories of unsold goods -- the first such drawdown in two years.
Fearing a slowdown earlier in the quarter, businesses curbed production.
But consumers kept buying, whittling store shelves. Inventories of autos, for example, were pared through aggressive sales promotions by General Motors Corp. and others.
The overall inventory reduction cut about 2.4 percentage points from second-quarter growth.
