Surprise Slowdown in US Growth

02 August 2002

The latest government data from the US Commerce Department reveals an unwelcome blip on the upward graph in the US economy’s recovery from recession.

A number of key sectors signal unexpected signs of weakness, among them government spending and commercial real estate. In the department’s latest revision, economic output grew at an annual rate of only 1.1% in this year’s second quarter – sharply below the five percent achieved in Q1, itself amended down from an earlier forecast of 6.1%.

Despite these less-than-cheery data, experts believe there is little likelihood of a so-called double-dip recession, although Q2 growth was so minimal that the economy would have gone into reverse had it not been for the widespread restocking of inventories after the 2001 slowdown.

The department also revised data from previous years which, according to the Wall Street Journal, suggests “that last year's recession was longer and deeper, with the economy shrinking in each of the first three quarters instead of just the third, as originally thought”.

Following Wednesday’s publication of the revised data, the usual market knee-jerk saw bluechip stocks dive in early trading before the Dow Jones Industrial Average staged a robust recovery to close marginally up on the day by 57 points at 8737.

But it wasn’t all bad news. Most of the fall in growth was due not to reduced spending but a shift in spend toward imported instead of US-produced goods; while other (and more recent) data indicates that July economic activity continued to move in the right direction, albeit in yo-yo style.

As the Federal Reserve’s ‘beige book’ survey reported Wednesday: “The economy expanded modestly in recent weeks, with an uneven performance across sectors.”

Data sourced from: The Wall Street Journal Online; additional content by WARC staff