Economists wary despite GDP surprise

Washington —- Thanks to exports, the U.S. economy grew much more quickly in the spring than originally believed, a government report showed Thursday.

So is it time to celebrate a recovery?

Not so fast, economists say. The surprisingly strong second quarter reflected a surge in U.S. exports, which is fading now.

“What we were getting was one of the last bumps off of exports,” said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. In the first half of this year, U.S. shipments to other countries benefited from a weak dollar and strong overseas demand for goods and services, he said.

Since then, the dollar has strengthened. Moreover, “Europe is clearly having very slow growth and … in Asia, things have really slowed in the last couple of months,” Dhawan said. “As the rest of the world slows down, the trouble [for U.S. exporters] will be going forward.”

In its original estimate, the government said second-quarter gross domestic product, a measure of all goods and services produced, climbed 1.9 percent. That was better than the first-quarter GDP increase of 0.9 percent, but still relatively feeble.

On Thursday, the Commerce Department said new data showed GDP growth actually hit 3.3 percent in the April-June period. That’s a healthy rate, suggesting the country was far from recession. The revised data showed that exports rose 13.2 percent, instead of the 9.2 percent originally reported.

The news about consumers was also slightly better than initially reported. Second-quarter consumer spending rose 1.7 percent, better than the previously reported 1.5 percent.

The reports helped send stocks soaring.

Still, most economists agree with Dhawan’s assessment that the economy isn’t out of the woods. They noted that consumer spending got a boost this spring from stimulus checks mailed to most wage earners. But the last of the checks were mailed in July, so the help is waning.

Also, the data showed the housing sector still faces big trouble. In the second quarter, residential fixed investment, which includes spending on housing, fell 15.7 percent, slightly worse than the original estimate of 15.6 percent. That was better than the first quarter’s 25.1 percent decline, but still grim.

U.S. Chamber of Commerce chief economist Martin Regalia, who presented his outlook at the chamber’s annual Labor Day briefing, said he expects growth to fall to a 1 percent annual rate this quarter, and then slip to zero or worse in the fourth quarter.

“The U.S. economy is still grappling with high oil prices, a stagnated housing market and turmoil in the credit markets,” Regalia said. “I don’t see these issues going away anytime soon.”

Nigel Gault, the chief U.S. economist for Global Insight, echoed that assessment.

“Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust GDP headline for some time,” he wrote.

In a separate report Thursday, the Labor Department said that in the week ended Aug. 16, the total number of workers drawing unemployment benefits for more than one week rose 64,000 to 3.4 million, the highest level since November 2003.

The news spurred liberals and conservatives to offer sharply varying assessments.

John Sweeney, president of the AFL-CIO, issued a statement criticizing Republican economic policies. “Since President Bush took office, we have lost more than 3 million good manufacturing jobs. Poverty has increased 25 percent [and] … gasoline has risen from $1.50 to $4 a gallon.”

Taylor Griffin, a spokesman for presidential candidate John McCain, used the GDP report to talk up the Republican’s support for global trade. The growth in exports “is a reminder that trade is a significant bright spot in an otherwise struggling economy,” he said.

MOVING ON UP?

> Strong growth: The U.S. economy grew in the spring at a 3.3 percent pace.

> The main driver: Strong sales of U.S. exports to foreign buyers helped bolster the GDP, while government tax rebates energized shoppers at home.

> The outlook: Economic slowdowns overseas could dampen exports.