Amid continuing news of layoffs, threats of terrorism and shaky consumer confidence, the U.S. economy grew at a higher rate than expected in the second quarter and fueled optimism that the recovery might be taking hold.
The gross domestic product, the value of goods and services produced by the nation and a key measure of economic health, grew at an annual rate of 2.4 percent in the second quarter, according to a U.S. Commerce Department report released yesterday.
Most Wall Street economists had expected a more modest 1.5 percent annual growth rate for the GDP.
While the rate was not considered robust, and it got an especially large boost from military spending that might not continue, economists said they expect more positive signs in the second half of the year.
"There's a lot of promise there," said James E. Glassman, senior U.S. economist at J.P. Morgan Chase & Co. in New York. "The overall number is a little stronger than expected, but not good enough yet. Jobs are what people look at. As growth picks up, businesses will have to hire."
The nation's unemployment rate in June was 6.4 percent, a nine-year high. But economists noted that new claims for unemployment benefits have been declining. The U.S. Labor Department reported that, in the week ending July 26, initial jobless claims were 388,000, a decrease of 3,000 from the previous week.
In Maryland, where government spending mitigated the effects of the national recession, the unemployment rate is 4.2 percent.
Local economists say that without a significant upturn in the national economy, the Maryland economy could eventually suffer more.
The spike in military spending - 44.1 percent in the April-June quarter - and a 25.1 percent increase in government spending in general are not likely to continue at that level. But spending on national security and the U.S. involvement in Iraq and Afghanistan will continue to have an impact locally.
"We've been wondering in economic circles when we'd see the effects of military spending," said Richard Clinch, director of economics for the Maryland Business Research Partnership, a University of Baltimore think tank. "The Washington region, the Maryland suburbs, are driven by government and defense spending. We weren't seeing the spending posted anywhere. Maybe we're seeing the numbers here [in the GDP]."
Clinch said that recent economic news and possibly the election of Republican Gov. Robert L. Ehrlich Jr. have boosted business confidence in the state.
A survey he released last Friday showed the number of Maryland businesses that expected revenue growth in the next year was up to 76 percent from 69 percent a year ago. The number that expected to add jobs in the next year rose to 60 percent from 54 percent a year ago.
And according to the state Department of Business and Economic Development based on national data, Maryland's job growth rate was 0.2 percent in June, with a gain of 5,700 jobs, while the national rate was down 0.3 percent, or 429,000.
But nationally, cautious businesses appear to be loosening up, economists said. Spending rose in the second quarter: Outlays for equipment and software was up 7.5 percent, and investment in building and plants was up 4.8 percent.
"This is the seventh quarter of growth in the GDP. The recession ended in November 2001, but there is a collective perception that the economy is not recovering, and the focus seems to be on the business sector," said Michael R. Englund, chief economist for MMS International, a financial and economic forecasting firm in New York.
"From the '90s, we're used to job creation. ... Productively has been robust, and the economy can't continue to grow without job creation. They will have to hire."
Even if the lack of job creation has dampened consumer confidence, it has not damped consumer spending.
That spending represents two-thirds of all economic activity and has kept the economy moving through the downturn. It was up 3.3 percent in the second quarter, propelled by a 22.6 percent uptick in spending on durable goods such as cars and appliances.
The red hot housing market, propelled by historically low interest rates, was up 6 percent. A recent rise in interest rates is likely to cool that market, however, economists said.
The overall Commerce report gave the financial markets a predictable boost by midday, but broad markets lost some of that steam by closing time.
The Dow Jones industrial average was up 33.75 points to 9,233.8 and the Standard & Poor's 500-stock index was up 2.82 points to 990.31.
