Washington optimistic after encouraging output results

In the second quarter of 2009 the US drop in GDP was 1 percent, better than previous forecasts of a 1.5 percent contraction. The result further increases hopes that the US economy is showing signs of recovery.


AFP - The US economy stayed on a path of recovery from its deep recession as output shrank at an unrevised 1.0 percent annual pace in the second quarter, the government said Thursday.

The figure for gross domestic product was better than expected by analysts, who had forecast a revision showing a 1.5 percent pace of decline.

The Commerce Department figures reflect an easing of the deep recession that led to a 6.4 percent pace of decline in the first quarter.

"The small overall decline provides additional confirmation that the recession is winding down and can be expected to end shortly," said Ed Friedman at Moody's

The revised report showed a drop of 1.0 percent in consumer spending, the main driver of economic activity, instead of the prior estimate of a 1.2 percent decline.

Motor vehicle output added 0.20 percentage points to the GDP after subtracting 1.69 percentage points from the first-quarter change.

Federal government spending increased 11.0 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first.

The housing sector remained a drag on the economy, with real residential fixed investment falling 22.8 percent, compared with a decrease of 38.2 percent in the prior quarter.

Exports fell 5.0 percent while imports decreased 15.1 percent -- a phenomenon that contributes to GDP because it means more production is domestic based.

A big drawdown in inventories subtracted from growth, although economists say this opens the way for increased activity because businesses will need to rebuild stockpiles.

The change in inventories subtracted 1.39 percentage points from second-quarter GDP, after taking away 2.36 percentage points in the first quarter.

"Bigger inventory drop paves way for grater output expansion," said Robert Brusca at FAO Economics.

Real final sales of domestic product -- a key reading of economic activity that strips out inventory adjustments -- showed a 0.4 percent drop in the second quarter, revised from last month's estimate of a 0.2 percent decline.

A separate report showed modest improvement in the critical labor market. New claims for US unemployment benefits dipped over the past week to 570,000 from the previous week's revised figure of 580,000, the Labor Department said.

The four-week moving average, which smooths out week-to-week volatility, was 565,250, a decrease of 4,750 from the previous week's revised average of 571,000.

The total number of Americans receiving unemployment benefits also fell.

According to the department, the number for seasonally adjusted insured unemployment or continuing claims during the week ending August 15 was 6.133 million, a decrease of 119,000 from the preceding week's revised level of 6.252 million.

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