US economic growth slows to 2.4% in second quarter

US GROWTH slowed to an annualised rate of 2.4 per cent in the second quarter but robust business demand suggested that the economy would avoid a feared “double dip” that could drag the world back into recession.

Yesterday’s preliminary gross domestic product estimate from the Bureau of Economic Analysis showed growth below market expectations of 2.6 per cent and down from a revised rate of 3.7 per cent in the first quarter.

Consumption growth fell to 1.6 per cent from 1.9 per cent, which reflected the lack of new jobs, and implied that the recovery still cannot sustain itself.

The weakness of growth is disappointing for this stage in a recovery. If data in the coming weeks does not show job creation fast enough to cut a 9.5 per cent unemployment rate, then the Federal Reserve will feel pressure to ease monetary policy.

US president Barack Obama, noting the economy had been growing for a full year, called the GDP numbers “a welcome sign compared to where we were”. But he added: “We’ve got to keep on increasing that rate of growth and keep adding jobs so we can keep moving forward.”

The US release came on top of soft data from around the world, including higher unemployment in Spain, France and Japan, a rise in the euro zone inflation rate from 1.4 to 1.7 per cent, and a 1.5 per cent dip in Japan’s industrial production in May.

But economists said a dip back into recession was unlikely for the US. “It is not quite as bad as it looks at first glance,” said Paul Ashworth, senior US economist at Capital Economics in Toronto.

The strength of investment – up by 29 per cent annualised over the previous quarter – suggested that business confidence was not too badly shaken by the fiscal crisis in Europe.

The biggest drag was a surge in imports: net trade subtracted 2.8 percentage points from the growth rate. An appetite for imports, however, suggests demand in the economy is strong.

The BEA also increased its estimate of the depth of the US recession. It cut its growth numbers by 0.2 percentage points for 2007, 0.4 points for 2008 and 0.2 points for 2009. – (Copyright The Financial Times Limited 2010)