GDP Declines 1 Percent in 2Q, Better Than Expected
Aaron Cain, center, gives resume-building advice to job seekers at a job fair in San Francisco, Thursday, Aug. 20, 2009. The number of first-time claims for unemployment benefits rose unexpectedly for the second straight week, a sign that jobs remain scarce even as other data show the economy is stabilizing. (AP Photo/Marcio Jose Sanchez)
(Marcio Jose Sanchez - AP)
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Thursday, August 27, 2009; 9:32 AM
The U.S. economy shrank by 1 percent in the April-through-June quarter, as was originally estimated, and the job market remained weak last week, with continued large numbers of people seeking unemployment insurance benefits.
The Commerce Department released a revision of second-quarter gross domestic product Thursday morning, the broadest measure of economic activity. It affirmed the original estimate that the economy contracted at a 1 percent annual rate in that quarter, though the components of that loss were different. Exports, investment and housing, consumption spending, and government spending were slightly higher than first estimated, but that was offset by downward revisions to inventories and investment in commercial real estate.
The downward revision to inventories is particularly good news. The more companies cut the goods in their warehouses and on store shelves to the bone in the first half of the year, the more they will have to ramp up production to keep up with demand in the second half.
Economists had expected the revision to indicate the economy was in fact shrinking at a 1.5 percent rate, so the affirmation of the original number supports the idea that the economy is improving. Economists generally believe that the economy is leveling off this summer, and many expect growth to be positive in the second half of the year.
Also on Thursday, the Labor Department released a report showing the number of people filing for unemployment last week fell last week by 10,000 to 570,000.
The jobless claims report also had no surprises. Analysts had been expecting first-time jobless claims to fall slightly after increasing for two straight weeks. The report is likely to reassure Wall Street, policy makers and economists who were surprised by the recent increases.
The pace of layoffs has slowed in recent months. And although weekly claims are volatile, they have been trending downward from their peak in January. They remain, however, above 500,000, which indicates a weak labor market. Claims in the 300,000 range are considered normal in a healthy economy.
Despite optimism about the recession leveling off, the labor market is expected to remain weak through next year. Businesses have little reason to hire because consumers have scaled back and started to save more in the face of rising unemployment and a record loss of wealth in the housing and stock markets. A weak labor market also slows wage growth, making it harder for those working to spend as well as save.
More than 6 million jobs have been lost since the recession began in December 2007 and there are roughly 14 million unemployed, including 5 million who have been out of work 27 weeks or more.
The unemployment rate dipped slightly in July, but largely because people dropped out of the workforce. The Labor Department will release its jobs report for August on Sept. 4.
