GDP in U.S. is revised downward - IHT

International Herald Tribune, Reuters, 26/09/2008

WASHINGTON: The U.S. economy grew less strongly than previously thought during the second quarter as consumers raised spending less vigorously and businesses trimmed some investments, a sign confidence was sagging even before financial market turmoil deepened.

The Commerce Department said on Friday that gross domestic product, the measure of total goods and services output within U.S. borders, expanded at a 2.8 percent rate in the April-June second quarter rather than the 3.3 percent rate it estimated a month ago.

The new evidence of fading economic activity came amid confusion in Washington about whether a plan to bail out U.S. financial firms by having the government use $700 billion of tax money to buy their bad debts can be revived. President George W. Bush has warned the country faces a painful recession if it is not.

While GDP growth was ahead of the first quarter's 0.9 percent rate, economists surveyed by Reuters had forecast the second-quarter pace would be unchanged rather than revised down. There were signs that the turmoil that has engulfed Wall Street was already spreading to consumers and small businesses in the second quarter.

Personal spending that fuels two-thirds of national economic activity grew at a revised 1.2 percent rate instead of 1.7 percent previously estimated, partly because spending for costly durables like cars contracted more sharply. Analysts expect consumers to keep retrenching in coming months as job losses mount and doubts about the economy's ability to stay out of recession grow.

Today in Business with Reuters

Businesses also appeared to be growing more wary about economic prospects in the second quarter. Spending on equipment and software, typically made when companies are planning production increases, shrank at a 5 percent rate rather than the 3.2 percent rate previously estimated.

It was the second straight quarter in which equipment and software spending contracted and was the steepest for any quarter since the beginning of 2002.

Companies cut their inventories at an annual rate of $50.6 billion in the second quarter. That was higher than the $49.4 billion rate previously estimated and was nearly five times the $10.2 billion rate at which inventories were trimmed in the first three months - a potential sign that businesses are bracing for tougher times ahead.