GDP grew 3.4% in 2nd quarter, down slightly from 1Q

Preliminary numbers show economy growing at a respectable pace

July 30, 2005|By William Neikirk | William Neikirk,CHICAGO TRIBUNE

WASHINGTON - The price of gasoline may be high, good jobs may be hard to find and the housing market may be frothy, but the U.S. economy just keeps rolling along.

The Commerce Department said in a preliminary report yesterday that the economy grew at a solid 3.4 percent annual rate in the second quarter, down slightly from the first quarter's 3.8 percent, but still highly respectable.

But what is next? The answer from most analysts is more of the same - steady but unspectacular growth amid swirling negative forces like slow global economic growth, rising oil prices and the uncertainty of terrorism.

The U.S. economy's ability to weather these blows has been a contributor to the stock market's rise and to more optimistic consumer attitudes.

Some analysts said yesterday that they expect the economy to accelerate in the third and fourth quarters, but others said they expected growth might either remain the same or taper off slightly.

"I think there's a good chance it go could above 4 percent in the third and fourth quarters," said William Mulvihill, economist at Claymore Securities in Chicago, one of the more optimistic analysts.

For nine straight quarters, the gross domestic product - the measure of all goods and services produced in the country -has grown at more than a 3 percent annual rate, a momentum that has proven hard to stop.

Inflation, however, was up. The Commerce Department said prices increased by 3.3 percent in the second quarter, compared with 2.3 percent in the first quarter. Food and energy prices were responsible for the acceleration.

There was another surprising development in the second quarter - exports rose by nearly 13 percent and imports fell by 2 percent, the opposite of what has been happening for a long time.

But the trade turnaround happened so swiftly and so surprisingly that most analysts saw it as a temporary spike.

Nigel Gault, economist at Global Insight, a Boston consulting firm, said aircraft sales played a big role in the sharp rise in exports in the second quarter and the level of such sales are not likely to continue in the next several quarters.

Mulvihill said if the trade turnaround "holds, it's a huge development, and a sign that the global economy may be stronger than expected" - that is, other countries buying American goods at a faster clip than in the past.

Also yesterday, the Labor Department said wages and benefits grew 0.7 percent in the second quarter.

Critics of the Bush administration said that, despite the rise in income, a disproportionate amount of the increase is going to the wealthy, creating a greater income gap in the United States.

One force likely to affect the economy the rest of the year is rising interest rates. The Federal Reserve is expected to raise short-term rates another notch on Aug. 9 and bring its benchmark short-term lending rate to 3.5 percent.

By year-end, said economist Sung Won Sohn of California's Hanmi Bank, the rate could reach 4 percent.

The Chicago Tribune is a Tribune Publishing newspaper.

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