Economic statistics released Friday offered the clearest sign yet that the recovery, already acknowledged to be sauntering, had slowed to a crawl. þþThe government lowered its estimate of economic growth in the second quarter to an annual rate of 1.6 percent, after originally reporting last month that growth in the three-month period was 2.4 percent. þþThe revision is a significant slowdownfrom the annual rate of 3.7 percent in the first quarter and 5 percent in the last three months of 2009. þþThe news came at the end of a week that showed the economic retrenchment that began in the second quarter has spilled over into the summer. Existing home sales in July were down to their lowest level in a decade, and sales of new homes that month were at their lowest level since the government began tracking such data in 1963. Orders for large factory goods, excluding the volatile transportation sector, dropped in July, indicating that recovery in the manufacturing sector is also stalling. þþWith such grim reports, economists are now concerned that the outlook for job creation, which has been spluttering all summer, could deteriorate further. Companies and consumers tend to be spooked by bad news, and market analysts and economists worry that faltering confidence could cause employers to hold back on hiring. þþ“When you get a downshift in growth there is a risk that it will feed on itself,” the chief economist at MF Global, James F. O’Sullivan, said. “The question now is to what extent has the improving trend just been temporarily set back or has it really been short-circuited.” þþThe markets were also awaiting a speech Friday morning from the chairman of the Federal Reserve, Ben S. Bernanke, as well as fresh indicators of consumer sentiment from a closely watched survey by the University of Michigan and Thomson Reuters. þþThe bulk of the downgrade in the second-quarter G.D.P. resulted from the fact that government analysts had assumed that American companies added more inventories to their warehouse shelves than they actually did. The adjustment also took into account a sharp rise in imports, leading to a wider-than-estimated trade deficit. þþEconomists polled by Bloomberg had been expecting the second quarter growth figure to be revised down to 1.4 percent. þþInventories, originally reported to have grown by $75.7 billion, actually grew by $63.2 billion. Some economists pointed to a silver lining in this figure. Because companies have kept inventories relatively low, “if demand was to take off, they would have to hire additional workers and ramp up production,” said Omair Sharif, United States economist at the Royal Bank of Scotland. “So the fact that businesses did not accumulate enough inventories sets the stage for a much stronger pickup in employment and hours worked in the future, if demand picks up.” þþImports, which were first reported as growing at an annual rate of 28.8 percent, the biggest jump in a quarter-century, grew by 32.4 percent, compared with a much lower gain of 9.1 percent in exports. þþWhat strength there had been in the original growth number came from business investment in items that included office buildings, equipment and software. The revised number showed that such spending jumped at an annual rate of 17.6 percent, not much changed from the originally reported 17 percent second-quarter increase. þþConsumer spending, which economists often look to as a primary indicator of recovery, grew 2 percent. That was a slightly better rate than the Commerce Department originally said last month when it reported that consumption grew at an annual rate of 1.6 percent in the second quarter, and slightly higher than the 1.9 percent increase in the first quarter. þþEconomists have been revising their forecasts for growth in the second half, with Goldman Sachs now projecting annual growth of 1.5 percent. Ben Herzon, a senior economist at Macroeconomic Advisers, a forecasting group, said the firm had taken its estimate for third-quarter growth down to 1.7 percent from 2.5 percent at the beginning of July. þþMr. Herzon said that he was not expecting a double-dip back into recession, however. “It’s difficult to point to a shock that would be bad enough to put the economy back into a recession,” he said. “I just think it means that this recovery is going to be slower and more painful than we originally expected.” þ
Source: NY Times
