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GDP growth revised higher but recovery is still sluggish

August 29, 2012|By Don Lee
  • Consumer spending was revised higher for the second quarter. Above, shoppers leave a Best Buy store in Victorville.
Consumer spending was revised higher for the second quarter. Above, shoppers… (David Pardo / Associated…)

Washington — The government said U.S. economic growth in the second quarter was a little better than previously thought, but it didn’t change the overall picture – the recovery remains sluggish.

The nation’s gross domestic product, the broadest measure of economic activity, expanded at an annual rate of 1.7% in the second quarter, the Commerce Department reported Wednesday. Previously, it estimated growth at 1.5% for the April-June period. The slight increase mainly reflected upward revisions to consumer spending and U.S. exports.    

Even so, the second-quarter GDP growth rate was the slowest since last summer and, importantly, too weak to bring down the unemployment rate. First-quarter growth was 2%.

Wednesday’s GDP report also showed that corporate profits rebounded slightly in the second quarter. On the whole, companies continue to do much better than households in this recovery.

As a share of GDP, corporate profits dipped slightly in the second quarter to 12.2% -- from 12.3% in the first quarter and a 50-year high of 12.7% in the fourth quarter of last year, according to James Marple, senior economist at TD Bank. But the uncertain political and economic outlook has some companies holding back on hiring and investing.

The current third quarter, as well as the entire second half, is looking only modestly stronger. Retail sales did show solid gains in July, and the housing market is emerging from the bottom. But still weighing on the economy are weak job growth and low confidence, in part because of the unending debt problems in Europe and concerns about the approaching “fiscal cliff” in the U.S., with higher taxes and government spending cuts looming in January.

Given those headwinds and an unemployment rate above 8%, analysts are expecting the Federal Reserve to take further steps very soon to spur growth. In recent weeks the Fed has been giving stronger signals that it is preparing new monetary stimulus measures, and Chairman Ben S. Bernanke could make a case for another round of bond-buying in a speech Friday at the central bank’s annual conference at Jackson Hole, Wyo.

US GDP Chart

US GDP data by YCharts

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