News & Current Affairs

August 28, 2008

US GDP rebounds with 3.3% growth

US GDP rebounds with 3.3% growth

A US shopper

Tax rebates have encouraged consumers to spend more

The US economy grew at a revised 3.3% annually in the second quarter of 2008, the Commerce Department said, much higher than its first estimate of 1.9%.

The rebound was linked to strong US exports, helped by the weak dollar, while government tax rebates also boosted consumer spending.

GDP grew at a rate of 0.9% in the first quarter, after a 0.2% contraction in the last three months of 2007.

The Federal Reserve has warned the economy will remain weak this year.

“While we’re not out of the woods yet, maybe we’re beginning to see some sunlight,” said John Wilson, equity strategist at Morgan Keegan.

“At some point, the market will begin to look through the trough and gauge the strength of the coming upturn.”

‘No recession’

The data showed that exports grew at an annualized rate of 13.2%, higher than the government’s initial estimate of 9.2%.

Imports fell at a rate of 7.6% as the US economic slowdown reduced demands for goods made overseas.

The improved trade balance added 3.1 percentage points to second-quarter GDP, the biggest since 1980.

The slowdown in the housing market was evident, as builders cut back and businesses reduced their spending.

Consumer spending, boosted by the government’s $600 tax rebate payments, rose by 1.7%, slightly higher than the previous quarter’s 1.5%.

Some observers said that the figures lent support to the argument that the US was not heading for a 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.”

16-year low

However recent data on the US housing market suggests a grim outlook for the sector.

US house prices were down a record 15.4% in the April to June quarter compared with a year ago, according to a closely-watched report released earlier this week.

The decline was recorded by the latest S&P/Case-Shiller survey of US national home prices.

The report said the fact that the falls were nationwide was the latest sign the US housing downturn is continuing.

Separate government data said sales of new homes were at an annual rate of 515,000 units in July, up slightly from June, but still near a 16-year low, and half the rate of new home sales one year ago.

1 Comment »

  1. “No recession”? There are a lot of hard pressed folks who would scoff at that notion.

    And once the election is over, the new Administration will not only have a major financial challenge on its hands, but all of us will start getting more bad news on the economy.

    There are too many “trillion dollar” figures being lightly tossed around in the media for the economy to heal itself any time soon.

    Keeping in mind that the U.S. annual gross domestic product is about $15 trillion.
    • The Bush administration revealed America’s budget deficit will climb to a record high of more than half-a-trillion dollars.
    • As of February ’08, the meltdown in the US subprime real-estate market has led to a global loss of 7.7 trillion dollars in stock-market value.
    • In order to bail out Fanny Mae and Freddy Mac , Congress increased the national debt by a whopping $800 billion sending it over the $10 trillion mark for the first time in history!
    • Since the passage of NAFTA and the creation of the World Trade Organization in 1994, America’s massive trade deficits has surpassed $5 trillion.
    • Foreigners own $2.5 trillion more of American assets than Americans own of foreign assets.
    • There are roughly $6 trillion in US dollar-backed assets around the world which could be quickly dumped if foreign holders of US dollars start selling their paper on the open market.
    • The non-partisan Government Accountability Office that says the U.S. government faces a $53 Trillion shortfall to cover the costs of promised benefits in its entitlement programs: Medicare, Medicaid and Social Security.

    Meanwhile, the U.S.’s national debt is expanding by about $1.4 billion a day — or nearly $1 million a minute.

    We’ll be very fortunate if it’s “only” a Recession.

    Comment by Grant Montgomery — September 4, 2008 @ 6:41 am

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