The US economy performed a little better than first thought in the second quarter, but growth is still flagging while inflation rises, a government report shows today.
The Commerce Department said the gross domestic product (GDP) of the world's largest economy grew at an annualised rate of 2.9% in the three months to the end of June, up from an initial estimate of 2.5%. The figure was just under Wall Street's consensus forecast of 3%.
GDP growth fell sharply from 5.6% in the first quarter and was the weakest pace since the final quarter of 2005.
The department reiterated that compared to the first quarter's booming pace, US consumers had cut back their spending on durable goods while companies had trimmed their investment in equipment and software.
On the inflation side, the Commerce Department left its first estimate for the index of personal consumption expenditures unchanged at 4.1% in the second quarter.
The core PCE rate, excluding food and energy costs, was revised down a notch to 2.8% from 2.9%, after rising 2.1% in the first quarter. It was still the rate's fastest pace of growth in more than five years. The core PCE level is the Federal Reserve's preferred gauge of inflation.
The US central bank this month called off a long-running campaign of interest rate hikes for fear of choking off the flagging economy. But the evidence of persistent price pressures could worry the Fed as it seeks to quell inflation without killing growth.
The lift to GDP came as the Commerce Department reported stronger investment by companies in infrastructure and inventories. At 22.2%, the rise in infrastructure spending was the strongest since the second quarter of 1994. That was revised up from an earlier estimate of 12.7%.
But consumer spending rose a slower 2.6% in the second quarter, compared to a 4.8% increase in the first three months. Final sales rose 2.3% from 5.3% in the first quarter.
US consumers' spirits have been depressed of late by a marked deceleration in the long-booming property market, which for years served to encourage spending. New US home sales tumbled 4.3% in July from June, while property prices fell deeper and the number of homes languishing unsold on the market hit a record high.
A Conference Board report yesterday showed that US consumer confidence slumped in August to its lowest level this year, falling to 99.6 from 107 in July.
On a brighter note, the GDP report showed that corporate profits rose for the third consecutive quarter in the three months to June, to yield year-on-year growth of 20.5%.
Earnings at financial institutions surged 27.8% while profits in all other sectors went up 15.6%. However, earnings from current production - corporate profits with inventory valuation and capital consumption adjustments - increased only by $49.5 billion after going up $175.6 billion in the first quarter.
