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News : US Economy Last Updated: Aug 2, 2011 - 6:55 AM

US GDP increased at annualized rate of 1.3% in second quarter
By Finfacts Team
Jul 31, 2011 - 12:55 PM

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Real gross domestic product (GDP) increased at an annualized 1.3% rate in the second quarter of 2011 after increasing 0.4% (revised) in the first quarter, according to estimates released Friday by the Bureau of Economic Analysis (BEA).

The BEA also released the 2011 annual revision of the national economic accounts. The general economic picture from 2007 to 2010 was not significantly changed. However, the revised estimates show a sharper cyclical contraction in GDP during 2008 and the first half of 2009. Over the six quarters of the contraction, the cumulative decrease in GDP was 5.1%, compared with 4.1% in the previous estimates.

Second-quarter GDP highlights: The following contributed to the pickup in real GDP growth:

  • Imports slowed, reflecting mainly downturns in “petroleum and products” and in “autos, engines, and parts”;

  • Federal government spending turned up, reflecting an upturn in national defense spending;

  • Business investment picked up, reflecting an upturn in structures investment.

Offsetting these contributions to the pickup in GDP growth was a sharp slowdown in consumer spending, led by a downturn in motor vehicles and parts.

Gross domestic purchases prices: Prices of goods and services purchased by US residents slowed in the second quarter, increasing 3.2% after increasing 4.0% in the first quarter. Energy prices slowed, while food prices grew at about the same rate.

Excluding food and energy, prices rose 2.6% in the second quarter after rising 2.4% in the first quarter.

Prof Peter Morici of the University of Maryland commented: "The economy expanded a tepid 1.3% in second quarter as consumer spending went flat, and imports drained off much of that domestic demand. Higher oil prices, Wall Street contracting and local governments retrenching are killing growth. All on top of a huge trade deficit with China, which sends much of what is not spent on oil abroad to China--not enough of either comes back to buy exports and replace jobs lost to oil and Chinese electronics. Exports were up but without cracking the protected Chinese market--which is where the consumers are--US chances to lower unemployment are nil.

Globalized economies must go with their strengths. For the United States those are resources, banking and medium and high-tech manufacturing and services.

Shutting down drilling makes the United States too dependent on foreign oil when it could be energy independent with oil selling for $100 a barrel.

Wall Street needs proper regulation but Sarbanes-Oxley and Dodd-Frank have not reined in trading nor redirected efforts toward honest lending. Too many business are dependent on volatile to crisis money markets for cash, because banks won't lend but instead trade.

Finally, China' exchange rate policy deprives US of growth in mid-range and high end manufacturing.

If an economy doesn't go with its strengths, it can't create jobs in a globalized economy.

President Obama will blame his predecessors and House GOP and budget morass--and with the help of the New York Times may get away with it."

Dan Greenhaus of Miller Tabak said:"The US is facing some major headwinds and challenges as it emerges from the worst recession in our lifetimes. Growth of this order is not only not enough to bring down the unemployment rate but would be coincident with an increase in unemployment. Fortunately, we do not expect this rate of growth to be repeated in the second half. However, and as we have been writing about lately, the current debate in Washington is having a negative effect on private sector activity and to the extent this continues, we have to believe that growth during the remainder of the year if not 2012 will be even lower than we originally thought."

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