Second Quarter GDP Contracts At Slower Than Expected Pace

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The U.S. economy continued to shrink in the second quarter, according to new government statistics released Friday, although the pace of contraction slowed by more than economists had been expecting.

The U.S. Commerce Department revealed that Gross Domestic Product, a closely watched measure of broad economic performance, fell at a pace of 1 percent for the second quarter. Economists had expected GDP to fall at a 1.5 percent rate.

This marks the fourth consecutive quarter of contraction, but the pace slowed considerably from the 6.4 percent decline that was seen in the first 3 months of the year.

While the moderated pace of decline is a step toward economic stability, experts are uncertain about the second-quarter report, noting that components of the report were mixed.

"We are set up for an improvement in inventories and trade, but consumer spending still remains in question," Peter Boockvar, equity strategist for Miller Tabak, said in a note to clients.

Personal consumption was down 1.2 percent in the second-quarter report, significantly more than economists had been expecting. This followed a 0.6 percent increase in the first quarter.

Consumer spending makes up about two-thirds of the U.S. economy, and rising unemployment and tight credit conditions have made it difficult for average Americans to pick up their spending.

"The drop in consumption in Q2 was a disappointment, because it is the one important piece which does not fit the bottoming-out narrative," noted Chris Low, chief economist at FTN Financial.

Low added, "As long as consumption is flat or falling, there will be doubts about the sustainability of any economic recovery."

Boockvar pointed out that government spending added 1.1 percent to the GDP figure, meaning that the better-than-expected reading came largely thanks to the massive stimulus authorities have used to prop up the economy.

There are a series of economic reports due to be released next week, culminating in the monthly employment report on Friday.

With jobs seen as the key to consumer spending, and the consumer the main stumbling block to a possible recovery, next week's employment numbers for July will be even more closely watched than normal.

The U.S. economy continued to shrink in the second quarter, according to new government statistics released Friday, although the pace of contraction slowed by more than economists had been expecting. The U.S. Commerce Department revealed that Gross Domestic Product, a closely watched measure of broad economic performance, fell at a pace of 1 percent for the second quarter. Economists had expected GDP to fall at a 1.5 percent rate. (Market News Provided by RTTNews)