The US economy continued to contract in the second quarter but the rate of decline slowed more than expected, supporting the view the recession could be bottoming out.
The Commerce Department said GDP, that is the total output of goods and services, fell at a one percent annual rate between April and June, that is a vast improvement on the first quarter’s revised drop of 6.4 percent; previously it had been thought to be 5.5 percent. It was the fourth quarter in succession that GDP has fallen, the first time that has happened since quarterly records began in 1947. There was a sharp fall in consumer spending, down at a 1.2 percent rate, increasing fears that the recovery would be sluggish. Consumer spending accounts for over two-thirds of US economic activity. The latest economic data will likely provide some comfort for President Barack Obama. His popularity has suffered because of the state of the economy. Soon after the figures were released he said: “Today’s GDP is an important sign that the economy has headed in the right direction and that business investment which had been plummeting in the last several months is showing signs of stabilising.” The credit crunch seems to easing with banks lending more. As a result business investment decreased at just an 8.9 percent rate, much better than the previous quarter’s 39.2 percent. Residential investment, which is at the core of the longest recession since the Great Depression, dropped at a 29.3 percent rate in the April-June period, but that also was a big improvement on the slump in the first quarter.