Economy slows to 1.6 percent

The economy grew at a much slower pace than previously estimated during the second quarter as the gross domestic product (GDP) grew at a 1.6 percent annual rate, according to The Washington Post. The initial GDP estimate was 2.4 percent, and the GDP grew at a 3.7 percent pace during the first quarter.

The slow growth mostly is because of the largest surge in imports in 26 years and a slower buildup of inventories. The widening trade gap subtracted nearly 3.4 percentage points from second-quarter growth.

Although the economy has grown for four straight quarters, the growth only has averaged 2.9 percent; the economy needs to expand at about 3 percent just to keep the unemployment rate from increasing.

Much of the second-quarter growth was driven by business investment in new machinery, computers and software. However, much of the spending involved the purchase of imported goods, which surged 32.4 percent, overwhelming a 9.1 percent increase in exports.

Consumer spending rose at a 2 percent annual rate compared with 1.9 percent during the first quarter. Other factors supporting economic growth are expected to fade; housing has slumped, business investment is expected to drop and the effects of the federal government’s economic stimulus package are expected to taper off this year.

Analysts expect the U.S. GDP to grow at a similarly weak pace for the rest of the year.

Date : 8/30/2010