http://news.yahoo.com/news?tmpl=story2&cid=1503&u=/afp/20030731/ts_afp/us_economy_030731141946&printer=1US economy grows 2.4 percent in second quarter
Thu Jul 31,10:19 AM ET Add Top Stories - AFP to My Yahoo!
WASHINGTON (AFP) - US economic growth shot to an annual pace of 2.4 percent in the second quarter, shattering sluggish expectations.
Commerce Dept./HO Photo
Defying forecasts for growth closer to 1.5 percent, the US economy gave the clearest sign yet it is shaking off Iraq (news - web sites) war-inspired shock and gathering speed, with business investment finally back.
The return in business investment, a 52-year record surge in defense spending, robust consumer spending, and a red-hot housing market powered growth, early Commerce Department (news - web sites) estimates showed.
"This is a very positive confirmation that the economy is turning the corner," said BMO Financial Group economist Sal Guatieri.
Gross domestic product, which had grown at a sickly 1.4-percent pace in the first quarter, appeared to be responding to a double dose of tax cuts and 45-year record low interest rates.
Businesses, long cowed by the Iraq war uncertainties, lifted non-residential fixed investment by 6.9 percent, with spending on structures such as factories up by a 43-year high of 4.8 percent and equipment/software expenditure up 7.5 percent.
"The economy truly does look to be on the mend," said Naroff Economic Advisors president Joel Naroff, noting that investment in buildings had climbed for the first time since 2001.
Defense spending roared 44.1 percent higher, the sharpest increase since 1951 during the Korean war, as President George W. Bush (news - web sites)'s administration conducted the Iraq war and a terrorism offensive.
As a result, federal government expenditure advanced 25.1 percent, the steepest increase since 1967, even as state and local governments trimmed spending by 1.5 percent.
Consumers stepped up spending 3.3 percent despite lingering agony in the labor market.
People ploughed 22.6 percent more money into big-ticket, durable items such as cars or washing machines. Residential fixed investment, coaxed by rock-bottom mortgage rates, surged 6.0 percent.
The US unemployment rate hit a nine-year high of 6.4 percent in June. The unemployment tally for July is due Friday.
Recovery hopes were bolstered by a separate Labor Department (news - web sites) report showing the seasonally adjusted number of new jobless benefit claimants shrank 3,000 to a five-month low 388,000 last week.
The bullish news tallied with a Federal Reserve (news - web sites) Beige Book survey, released Wednesday, indicating the economy had picked up speed by "a notch" in the past six weeks.
Factories, which had shed 2.7 million jobs during a three-year contraction, were finally coming out of the doldrums, it said.
"Consistent with the generally more positive assessments of economic activity, several districts noted increased optimism about economic prospects in coming months," the Federal Reserve said.
Bush, who has passed a 350-billion-dollar tax-cut package told a news conference on Wednesday that he saw "hopeful signs" the economy was accelerating and would generate more jobs.
His chief economic policymaker, Treasury Secretary John Snow, has forecast economic growth of more than three percent in the third quarter of this year, 3.5 percent in the last quarter and four percent in 2004.
The latest figures showed international trade was a drag on the economy, however, with exports sliding 3.1 percent in the second quarter. Imports, which detract from economic output, leapt by 9.2 percent.
Businesses trimmed their inventories by 17.9 billion dollars in the period, eroding 0.77 percentage points from the overall economic growth pace, the data showed.
