Weak US economy ekes out 0.7% GDP gain

The US economy turned in its weakest performance in eight years during the second quarter as businesses slashed spending on software…

The US economy turned in its weakest performance in eight years during the second quarter as businesses slashed spending on software and other investments and pared back bloated inventories, the US government said today.

The US Commerce Department said gross domestic product, the broadest measure of the nation's economic health, increased at an inflation-adjusted annual rate of 0.7 per cent in the April to June quarter. That followed a 1.3 per cent gain in the first quarter, which was revised up slightly from a previously reported 1.2 per cent increase.

The second-quarter GDP figure marked the economy's most lackluster showing since a 0.1 per cent contraction in GDP in the first quarter of 1993.

Even though growth in the recently ended quarter was anemic, the fact that GDP rose at all was in some ways good news. In recent months, some economists had feared the economy might have slipped into its first recession in 10 years.

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A recession is loosely defined as two straight quarters of falling GDP, so any decline in economic output would have been an ominous sign.

"Clearly, the good news is a plus number," said Mr Wayne Ayers, chief economist at FleetBoston Financial. "We've avoided a recession and we'll continue to avoid it."

Mr Ayers added, "The biggest risk is the consumer. Everything is still good there. Layoffs have been concentrated in the manufacturing sector but they have been spreading."

US consumers, whose spending makes up two-thirds of GDP, have so far been the economic stalwarts. Their expenditures increased at a 2.1 per cent rate in the second quarter following a 3 per cent gain in the first quarter.

GDP grew at a 1.3 per cent annual rate in third quarter of last year, revised down from the previously reported 2.2 per cent gain. Fourth-quarter growth was revised upward, however, to a 1.9 per cent rise from 1.0 per cent.