Recession end seen as US GDP drop narrows to 1.0 pct

 The US economy showed signs of emerging from a long and brutal recession, according to data Friday that pointed to a narrower-than-expected 1.0 percent decline in output in the second quarter.

The Commerce Department estimate on gross domestic product (GDP) was stronger than expected by private forecasters who had called on average for a 1.5 percent annualized pace of contraction in the April-June quarter.

The report showed an easing of the horrific slump and lent credence to predictions that the world's biggest economy was close to emerging from a recession that began in December 2007.

The report "is another indication that the recession will soon end," said Augustine Faucher, economist at Moody's "Conditions are set for a rebound in the current quarter."

Scott Brown, chief economist at Raymond James & Associates, said the figures showed "signs of stabilization in a lot of areas of the economy, so the worst is definitely behind us."

People walk outside of the New York Stock Exchange

Jennifer Lee at BMO Capital Markets was upbeat on what she said was the largest improvement in the economy since 2000.

"The results set the stage for a positive read on the GDP in the third quarter, which means that the recession will likely be wrapped up in the July-to-September period," Lee said.

The Commerce revisions showed a 6.4 percent decline in the first quarter, worse than the previous estimate of a 5.5 percent drop. In the fourth quarter of 2008, the drop was revised to 5.4 percent instead of 6.3 percent.

Other revisions from 2008 showed a weaker GDP than originally estimated, with growth of 0.4 percent for the full year instead of 1.1 percent.

President Barack Obama said the data showed the recession was deeper than previously thought when he took office, and that the economy is now doing "measurably better."

"This, and other difficult, but important, steps that we've taken over the past six months, have helped us put the brakes on the recession," he said.

Obama, however, said that the monthly jobs report due out next Friday was "likely to show we're still continuing to lose far too many jobs."

Many private and government economists see a return to growth in the second half of the year, although some warn that rising unemployment could dampen any recovery.

The jobless rate hit a 26-year high of 9.5 percent in June amid more retrenchment by employers. Some expect the jobless rate to rise to 10 percent or higher.

Some economists point out that third-quarter GDP may get a boost from vehicle sales linked to a strong response to the federal government's "cash-for-clunkers" incentives.

"I suspect the cash-for-clunkers program pushed a lot of June vehicle sales into July," said Joel Naroff at Naroff Economic Advisors. "Look for consumption to turn positive."

The US House of Representatives on Friday voted to pump another two billion dollars into the program, which pays consumers to trade in gas-guzzling cars and trucks for more efficient vehicles.

But many segments of the economy remained extremely weak, GDP data showed. Private investment was down 20.4 percent, but that was better than a 50 percent plunge in the first quarter.

Consumer spending, the main driver of economic activity, fell 1.2 percent after a rise of 0.6 percent in the first quarter.

Bart Van Ark, chief economist at the Conference Board, said the report offers no hope for a quick "V-shaped" recovery.

Van Ark said the GDP data "confirms that the path to recovery remains a long haul, with more disappointments likely in the months to come."

"Consumer spending came out worse than expected and is likely to remain weak into the third quarter because of ongoing clogging in income and credit channels," he added.

The report showed positive contributions came from government spending, increased auto production and trade.

Real final sales of domestic product -- a key figure that strips out inventory adjustments -- showed a 0.2 percent drop in the second quarter, compared with a decrease of 4.1 percent in the first.

Federal government expenditures and investment increased 10.9 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first. That included defense expenditures up 13.1 percent.

A positive contribution to GDP from trade came despite a drop in exports linked to weakness in the global economy. Exports of goods and services decreased 7.0 percent in the second quarter while imports fell 15.1 percent.

source AFP

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