Friday, August 29, 2008

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US Second Quarter GDP Rebound Unlikely to Last

The US GDP grew at a 3.3% annual rate in the second quarter (April-June), its fastest pace in nearly a year, the Commerce Department reported on Thursday. The revised reading was much better than the government's initial estimate of a 1.9% pace and exceeded economists' expectations for a 2.7% growth rate. The rebound is attributed largely to strong exports.

News report said, however, the rebound is unlikely to last.

"There will be heavy sledding for the U.S. economy during the next couple of quarters," predicted Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

It's "the last hurrah for this economic cycle," said Martin Regalia, chief economist for the U.S. Chamber of Commerce.

Federal Reserve Chairman Ben Bernanke has warned the economy will be weak through the rest of 2008.

Economists believe growth will slow in the July-September quarter to a pace of around 1.5%, and will turn even weaker in the fourth quarter.

"With the rest of the world now slowing and the dollar off its lows, the U.S. will be more reliant on domestic demand in coming quarters," said Nigel Gault, an economist at Global Insight. "Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust GDP headline for some time."

The effects of the housing market's collapse were evident in the GDP report, with builders cut back at an annual rate of 15.7% in the second quarter.

Businesses also trimmed spending on equipment and software in the spring. One measure of corporate profits showed companies losing ground in the second quarter. After-tax profits fell 3.8% in the spring, compared with a 1.1% increase in the first quarter.

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