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September 28, 2012

US Economy Grew at Slower Pace in Second Quarter

by Mil Arcega

The U.S. economy grew at a slower pace from April to June than previously thought.  Final government estimates for the second quarter show U.S. gross domestic product expanded at a 1.3 percent annual rate - down from last month's estimate of 1.7 percent.  While growth was not as robust as many hoped, economists say it's not all gloom and doom for the world's largest economy.
 
U.S. domestic output weakened in the second quarter, growing at the slowest pace in 9 months. The slowdown is blamed partly on unusually warm weather - a prolonged drought that decimated farm inventories and sent corn and soybean prices to new highs.
 
But things are not as bad as they seem. Consumer spending outpaced growth in the second quarter - April through June.
 
And despite high unemployment, economist Max Wolff at Greencrest Capital said companies are laying off fewer workers.
 
"The job situation here is lousy but it's not terrible. So it's not worsening. We are seeing 100,000 - 150,000 new jobs a month. We do need 120,000 each month to keep pace with population growth," said Wolff.
 
The housing market also has seen steady improvement. Even after a slight dip in August, home sales are up from last year - and prices are rising. 
 
As for investments, Yahoo finance editor Aaron Task said the U.S. remains an attractive bet.
 
"In a global economy, global investors have to put their money somewhere. And they look at the United States as a safer place to put it than Europe, certainly than China, than a lot of the other emerging markets."
 
Others warn, however, against over confidence.
 
Uri Dadush heads the Global Economics program at the Carnegie Endowment for International Peace.
 
"Going forward, there are really three big things to worry about. One, the European situation continues to be very fragile in my view,” he said. “The second is the fiscal cliff - the famous fiscal cliff coming at the end of this year, and the third is the slowdown in emerging markets."
 
Dadush said uncertainty over the debt crisis in Europe and a political stalemate in the U.S. over tax cuts and spending - known as the fiscal cliff - have the potential to plunge the global economy into another recession.
 
Many will be looking for more clues on U.S. economic health when a key government report on the job market comes out on October 5.