U.S. Economy Grew Just 1.0% in Q2

Economy has expanded just 1.5% over the past year, too weak to create the job growth necessary for a self-sustaining expansion.

The economy grew at a weaker pace than initially believed in the second quarter, the Commerce Department said on August 26 in a report that underscored the tenuous nature of the two-year-old recovery.

The Commerce Department lowered its estimate for second-quarter growth in gross domestic product to an annual rate of 1% from the first quarter, from a prior reading of 1.3%

"The recovery continues, but is extremely fragile. The economy has expanded just 1.5% over the past year, too weak to create the job growth necessary for a self-sustaining expansion," said Augustine Faucher at Moody's Analytics.

Growth in the April-June period was hit primarily by downward revisions to inventory investment and exports, that were only partly offset by upward revisions to business fixed investment and consumer spending.

Among positive signs in the latest GDP data was a 3% rise in corporate profits, triple the increase in the first quarter. "Strong profitability should spur labor market gains and an improvement in growth," Moody's Faucher said. But risks were growing, he warned. "The likelihood of a double-dip recession is now one-in-three; the next one or two months will be crucial."

The second-quarter reading was a tick worse than analysts expected, and followed near-stalled GDP growth of 0.4% in the first quarter.

The Federal Reserve estimates that growth must hit at least 2.5% to reduce the jobless rate, which stood at 9.1% in July, two years after the official start of recovery from severe recession.

"Expectations of even weaker growth to come in the third quarter has reignited discussion of a double-dip" recession, said Lindsey Piegza at FTN Financial.

The report came ahead of a highly anticipated speech by Federal Reserve chairman Ben Bernanke that has markets on tenterhooks hoping the central bank chief will offer support to boost sluggish growth.

Copyright Agence France-Presse, 2011

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