Exports push up GDP growth in US to 3.3% in second quarter

Posted: 28 August 2008 2105 hrs

WASHINGTON: The US economy outpaced expectations as surging exports fuelled a second-quarter growth spurt at a 3.3 percent pace, according to data on Thursday that analysts say makes recession less likely.

The Commerce Department revised upward last month's estimate of a 1.9 percent annualised pace of growth in gross domestic product (GDP).

The figure was much better than the average Wall Street estimate of 2.7 percent and showed a strong acceleration from the 0.9 percent rate of the first three months of the year.

The latest figures, helped somewhat by a massive economic stimulus package, suggest the world's biggest economy had more momentum than previously thought by analysts, many of whom anticipated recession.

"For a recession the economy is certainly growing very quickly," said Avery Shenfeld, senior economist at CIBC World Markets.

"A lot of that growth is driven off exports and pessimists might say that can't continue during slowing growth overseas, but I would say this happened precisely during the period of slowing growth overseas ... this is still an economy that faces slow times but not a recession."

Scott Brown, chief economist at Raymond James & Associates, said he sees conflicting signals in recent economic data.

"A lot of the monthly indicators are suggesting recession but things like new orders and GDP suggest the economy is improving."

Some analysts said the economy still has a recession feel despite the robust figure, and that special factors may be distorting the GDP rate.

"If the US economy were growing at its potential pace, the unemployment rate would not have risen a full percentage point over the past year," said Citigroup economist Steven Wieting, who argues that data on new jobless claims are "still recessionary."

The revised report showed trade alone accounted for 3.10 percentage points in the overall growth rate. It showed exports surged 13.2 percent, instead of an earlier estimate of 9.2 percent, while exports fell 7.6 percent, instead of 6.6 percent.

Consumer spending, the largest component of economic activity, was up a modest 1.7 percent, just 0.2 points more than previously estimated, despite a massive 168-billion-dollar government stimulus package that sent out tax rebates to tens of millions of people.

The main drag on growth remained the housing sector, with investment in residential property slumping 15.7 percent, not as bad as the 25.1 percent slide in the first quarter.

Business spending grew 2.2 percent and government expenditures by 6.8 percent.

A key inflation index linked to GDP rose 4.2 percent while core prices excluding food and energy were up 2.1 percent.

Still, many analysts expect the current growth pace to continue to slow, consumer spending is sluggish and a rebound in the dollar may curb growth in exports.

"With economies abroad slowing and the one-time impact of tax rebates dissipating, we expect annualised economic growth to recede to near 1.0 percent in the third quarter and to maintain this pace into early-2009 before gradually improving," said Peter Kretzmer, an economist at Bank of America.

Aaron Smith at Economy.com also said the strong figure is misleading.

"The better-than-expected outcome overall does not change our view that the economy is weakening, with the beneficial effects of rebate checks and foreign demand fading fast," Smith said.

The US Federal Reserve has held its base interest rate at a low 2.0 percent as part of an effort to fire up a lagging economy hurt by tight credit and weak housing. But in the past few months the central bank has indicated the next move will likely be an increase to keep inflationary pressures in check.

The central bank has forecast 2008 growth in a range of 1.0 to 1.6 percent, up from an April projection of 0.3 to 1.2 percent. - AFP/ir/de