Living in lala-land : 'Progress in reducing the jobless rate
probably will be “frustratingly slow.” '
Growth
In U.S. Slows As Consumers Restrain Spending
The
world’s largest economy cooled in the second quarter as limited job
growth prompted Americans to curb spending while state and local
governments cut back.
28
July, 2012
Gross
domestic product, the value of all goods and services produced, rose
at a 1.5 percent annual rate after a revised 2 percent gain in the
prior quarter, Commerce Department data showed today in Washington.
Household purchases, which account for about 70 percent of GDP, grew
at the slowest pace in a year.
Europe’s
debt crisis and looming U.S. tax changes threaten to keep the
expansion in check and are hurting sales at companies from United
Parcel Service Inc. (UPS) to Procter & Gamble Co. (PG) Federal
Reserve policy makers, led by Chairman Ben S. Bernanke, meet next
week to discuss whether further measures are needed to boost growth
and push down an unemployment rate that’s been stuck above 8
percent for more than three years.
“We’re
not going to bust out of this moderate-growth recovery we’ve been
in for quite some time,” said Dean Maki, chief U.S. economist at
Barclays Capital in New York, who correctly forecast the GDP gain.
“Growth is slow but not fragile, and there may be a modest pickup
in the second half.”
Stocks
rose on speculation the European Central Bank will buy bonds to help
lower borrowing costs and preserve the euro. The Standard &
Poor’s 500 Index climbed 1.9 percent to 1,385.97 at the close in
New York. The yield on the benchmark 10-year Treasury note increased
to 1.54 percent from 1.44 percent late yesterday.
‘Moderate
Expansion’
“The
economy remains on a moderate expansion path,” said Chris Rupkey,
chief financial economist at the Bank of Tokyo- Mitsubishi UFJ Ltd.
in New York, predicting growth will benefit from a decline in
gasoline prices and signs the European crisis may ease.
The
GDP report leaves the door open for President Barack Obama to win an
election contest dominated by economic concerns and shaping up as one
of the closest in decades.
“This
sort of slow-growth region puts it in the too-close- to-call
category,” said Alan Abramowitz, a political science professor at
Emory University in Atlanta.
The
median forecast of 82 economists surveyed by Bloomberg News called
for a 1.4 percent increase in GDP in the second quarter. Estimates
ranged from gains of 0.7 percent to 1.9 percent.
Household
Spending
Household
consumption rose at a 1.5 percent rate from April through June, down
from a 2.4 percent gain in the prior quarter. Purchases added 1.05
percentage points to growth.
Rebecca
Offensend, who works in the marketing department of a travel company
in San Francisco, said she and her friends are cutting back.
“There’s
a belt-tightening going on with my group of friends,” Offensend,
26, said. “It’s just very, very hard to save any money at all
when you’re living paycheck to paycheck. It shocks me that I’m
barely getting by after taxes.”
UPS,
the world’s largest package-delivery company, cut its full-year
profit forecast after a drop in second-quarter international package
sales. The Atlanta-based company, considered an economic bellwether
because it moves goods ranging from financial documents to
pharmaceuticals, projects the U.S. will grow 1 percent in the
remainder of 2012.
Global
Economy
“Economies
around the world are showing signs of weakening,” Chief Executive
Officer Scott Davis said on a July 24 call with analysts. “In the
U.S., uncertainty stemming from this year’s elections and the
looming fiscal cliff constrains the ability of businesses to make
important decisions such as hiring new employees, making capital
investments, and restocking inventories.”
The
so-called fiscal cliff represents more than $600 billion in higher
taxes and reductions in defense and other government programs next
year that will occur automatically without action by U.S. lawmakers,
threatening to push the economy into recession.
A
pickup in homebuilding has helped some manufacturers. Caterpillar
Inc. (CAT), the largest maker of construction and mining equipment,
this week raised its full-year profit forecast on increased demand
from North American builders.
“We
are planning for a world that is growing anemically in the next 24
months,” Chief Executive Officer Doug Oberhelman said on a July 25
conference call to discuss his company’s earnings. “We are not
planning for an implosion.”
GDP
Revisions
With
today’s release, the Commerce Department’s Bureau of Economic
Analysis also issued revisions dating back to the first quarter of
2009. The changes showed the first year of the recovery from the
worst recession in the post-World War II era was even weaker than
previously estimated.
In
the first three years of this recovery, the economy has grown 6.7
percent compared with an average 14 percent gain during comparable
periods in expansions dating back to 1948, excluding the short-lived
1980-81 rebound.
GDP
grew 2.5 percent in the 12 months after the contraction ended in June
2009, compared with the 3.3 percent gain previously reported, the
Commerce Department said.
The
final quarter of last year was revised up to a 4.1 percent gain, the
best performance in almost six years, underscoring a more marked
slowdown in the first half of 2012. The fourth-quarter gain was
previously reported as 3 percent.
Consumer
Sentiment
Another
report today showed consumer confidence in July dropped to the lowest
level this year. The Thomson Reuters/University of Michigan final
index of sentiment declined to 72.3 this month from 73.2 in June. The
gauge was projected to hold at the preliminary reading of 72,
according to the median forecast of economists surveyed by Bloomberg.
Recent
data signal consumers are reluctant to step up purchases. Retail
sales fell in June for a third consecutive month, the longest period
of declines since 2008. Same-store sales rose less than analysts’
estimates at retailers including Target Corp. (TGT) and Macy’s Inc.
(M)
Slowing
sales and currency fluctuations led Procter & Gamble, the world’s
largest consumer products company, to cut profit forecasts three
times this year.
Consumers
may remain cautious until hiring accelerates. Payroll gains averaged
75,000 in the second quarter, down from 226,000 in the prior three
months and the weakest in almost two years. The unemployment rate,
which held at 8.2 percent in June, has exceeded 8 percent for 41
straight months.
‘Frustratingly
Slow’
Bernanke
told lawmakers last week that progress in reducing the jobless rate
probably will be “frustratingly slow.”
“Economic
activity appears to have decelerated somewhat during the first half
of this year,” Bernanke said in testimony to Congress. The Fed is
“prepared to take further action as appropriate to promote a
stronger economic recovery.”
Cutbacks
by government agencies continued to hinder growth as spending dropped
at a 1.4 percent annual rate in the first quarter, the ninth decrease
in the last 10 periods. The decline was led by a 2.1 percent fall at
the state and local level that marked an 11th consecutive drop.
Business
investment cooled last quarter, reflecting stagnant spending on
commercial construction projects. Corporate spending on equipment and
software improved, climbing at a 7.2 percent pace, up from a 5.4
percent increase in the previous quarter.
A
report yesterday showed the corporate spending outlook has dimmed.
Bookings for non-military capital goods excluding aircraft, a proxy
for future investment, fell at a 3.1 percent annual rate in the
second quarter, the first decrease since the same period in 2009,
when the U.S. was still in a recession, according to Commerce
Department data.
A
measure of inflation, which is tied to consumer spending, climbed at
a 0.7 percent annual pace in the second quarter, the smallest gain in
two years. The slowdown in spending combined with less inflation
helped boost the personal saving rate to 4 percent from 3.6 percent
in the prior period.
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