GDP Grows 5.3 Percent

W A S H I N G T O N, Aug. 25, 2000 -- The U.S. economy grew at a robust annual rateof 5.3 percent in the second quarter with strong investment by Americanbusinesses offsetting less brisk spending by consumers.

The Commerce Department reported today that the increase in thegross domestic product — the nation’s total output of goods andservices and the broadest measure of economic health — in theApril-June quarter surpassed growth in the first quarter when theeconomy grew at a 4.8 percent annual rate.

The government’s revised reading on GDP — based on more datathan its initial calculation — showed the economy growing slightlyfaster than the 5.2 percent rate it estimated one month ago. Therevised figure was in line with many analysts’ predictions of a 5.4percent growth rate.

In the current quarter, many analysts believe the economy hasslowed to a growth rate of around 3.5 percent to 4 percent.

Housing Starts Figure DeclinesIn a second report, the National Association of Realtorsreported that existing-home sales plunged 9.8 percent in July to aseasonally adjusted annual rate of 4.79 million units as highermortgage rates cut into demand.

The trade group says the Federal Reserve’s rate boosts tend totake a while to curb buying and that effect is now being seen. Itsays the recent decline in mortgage interest rates may give homesales a boost in the coming months.

The average 30-year, fixed interest rate in May was the highestseen since February 1995.

Inflation EasesEven with the robust growth in the second quarter, inflationpressures actually moderated. An inflation gauge tied to the GDP,and closely watched by Federal Reserve Chairman Alan Greenspan,rose at an unrevised annual rate of 2.3 percent in the secondquarter, down from a 3.5 percent rate in the first quarter.

The Federal Reserve has raised interest rates six times over thelast 14 months to slow the economy and keep inflation undercontrol. On Tuesday, the Fed decided to leave interest ratesunchanged, but left the door open to further rate increases shouldtight labor markets spark wage and price pressures down the road.

Business Investments Add to StrengthToday’s report also said that after-tax profits of U.S.corporations grew by 2.4 percent in the second quarter, down from5.7 percent in the first quarter.

Consumer spending, which accounts for two-thirds of all economicactivity, also slowed in the second quarter, rising at a 2.9percent rate, the slowest pace since the second quarter of 1997. Inthe first quarter, consumer spending surged at a 7.6 percent rate,a 17-year high.

While consumer spending did cool in the spring, it was offsetby strong business investment, including spending on computers andother equipment, which rose at an annual rate of 14.6 percent inthe second quarter. That compared with a 21 percent rate posted inthe first quarter. Businesses also increased their spending oninventories, adding to second-quarter growth.

The Government’s PartAlso contributing to growth was increased spending by thefederal government, which rose at a whopping annual rate of 16.9percent in the second quarter. That compared with a 14.2 percentrate of decrease in the first quarter.

The U.S. trade deficit, however, continued to be a drag ongrowth. The bloated deficit subtracted 1.2 percentage points fromgrowth in the second quarter, compared to a reduction of 0.9percentage points in the first quarter.

All the changes show the economy growing at an annual rate of$119.7 billion in the second quarter, pushing the country’s totaloutput of goods and services to $9.3 trillion after adjusting forinflation.