GDP Up 0.7%, Weakest Growth Since 1993

A Commerce Department report released today showed the U.S. economy grew at a rate of 0.7%, in the second quarter -- the slowest pace in eight years.

Analysts had projected the Gross Domestic Product would increase by a full percent after posting a 1.2 % gain in the first quarter. According to Bloomberg News, this is the first time since the 1990-1991 recession to see a rate of growth slower than 2 percent for three consecutive quarters.

When adjusted for what Bloomberg called “tame” inflation, the GDP totaled $9.35 trillion in the second quarter when projected at an annual rate. This compares with a first quarter GDP of $9.33 trillion.

The slow growth was attributed to slumping business investment in equipment and software as well as lower levels of consumer spending.

Bloomberg News said the news helps explain the Federal Reserve’s six interest rate cuts this year. Analysts expect the lower rates, lower energy prices and tax rebates to spur economic growth for the second half of 2001.

The report also downgrades some benchmarks from 2000. Earlier reports had set growth at a rate of 5%, but in this most recent study, the rate of growth was found to be 4.1%.

The personal consumer expenditure price index, the index most watched by Fed Chairman Alan Greenspan, rose a modest 1.7 % in the second quarter after a more than 3% gain the in the first, Bloomberg said.

Consumer spending, which accounts for 60% of the GDP rose 2.1% in the second quarter after a 3% rise in the first. Spending on non-durable goods such as fuel, clothing and food slowed during the quarter, according to Bloomberg.

The report said non-residential fixed investment, including commercial construction, fell at a 13.6% rate in the second quarter.

7603