- The US economy lost pace in the second quarter amid a
sharp slowdown in consumer spending, official figures showed today.
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- For the April-June period, gross domestic product (GDP)
rose at a modest 3% annual pace following an upwardly revised 4.5% rate
at the start of the year, the Commerce Department reported.
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- The extent of the slowdown caught most of Wall Street
by surprise, with many economists having expected GDP growth of around
3.8%.
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- The figures will come as a disappointment to the Bush
administration, with the White House banking on a strong economy to create
plenty of jobs in the months before the presidential elections take place
on November 2.
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- The Democratic presidential candidate, John Kerry, yesterday
pointedly compared Mr Bush's economic record with that of his predecessor,
Bill Clinton, during whose presidency 23 million jobs were created.
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- The slowdown in the second quarter stemmed from a moderation
in consumer spending, which rose at an annual rate of just 1%. That was
the smallest increase since a similar rise in the second quarter of 2001,
when the economy was in the doldrums.
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- Offsetting the weakness in consumer spending, business
investment and housing continued to race ahead during the quarter. Consumer
spending, however, is critical, because it accounts for two-thirds of total
US economic activity.
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- Many economists believe the slowdown in consumer demand
will be temporary, pointing to strong job growth in recent months and rising
consumer confidence that will provide support for a rebound in consumer
spending in the months ahead.
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- The Federal Reserve, the US central bank, began raising
interest rates on June 30, with its chairman, Alan Greenspan, indicating
that a "measured" approach towards monetary policy could be expected
as long as inflation remained quiescent.
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- On that score, the GDP report contained encouraging news.
Inflation pressures eased, with a key GDP inflation gauge - excluding energy
and food - rising at an annual rate of only 1.8% in the second quarter,
down from a 2.1% increase in the first quarter.
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- "What really stands out in this report is that we're
looking at a more pronounced than expected slowing of economic activity,
mostly because of the shockingly small increase in consumer spending,"
John Lonski, the chief economist at Moody's Investors Service in New York,
told Reuters.
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- Guardian Unlimited © Guardian Newspapers Limited
2004
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- http://www.guardian.co.uk/usa/story/0,12271,1273040,00.html
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