Lack of jobs hits consumers to slow world's biggest economy
THE US economy slowed in the second quarter as a scarcity of jobs eroded consumer spending, leaving the rebound dependent on a surge in business investment.
Gross domestic product grew at a 2.4pc annual pace, less than forecast, after a 3.7pc first-quarter gain that was larger than previously estimated, according to Commerce Department data issued yesterday. Other reports showed business activity unexpectedly accelerated in July and consumer sentiment fell less than projected.
"The economy is muddling through," said Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research.
"We're probably not going to see a really strong number for a while. We need to see some pickup in job growth."
Stocks fluctuated between gains and losses as the reports on confidence and on activity by Chicago-area business managers eased concern the recovery was losing steam. Efforts to diversify from consumers to businesses is among reasons why companies like Amazon.com are pouring money into new plants and equipment, which is helping sustain growth.
The worst US recession since the 1930s was even deeper than previously estimated, with bigger slumps in consumer spending and housing, according to the Commerce Department.
The world's largest economy shrank 4.1pc from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7pc drop previously on the books, the report showed.
Household spending fell 1.2pc in 2009, twice as much as previously projected and the biggest decline since 1942.
Consumer spending, which accounts for about 70pc of the economy, rose at a 1.6pc pace last quarter, compared with a 1.9pc rate the previous three months that was smaller than previously estimated. Job gains have been slow to take hold, curbing household purchases.
The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. So far this year, company payrolls grew by 593,000 workers, according to Labour Department figures earlier this month.
The trade gap in the second quarter widened to $425.9bn from $338.4bn, subtracting 2.8 percentage points from growth, the biggest reduction since 1982. Imports grew at a 29pc pace, while exports rose 10pc.
US manufacturers are reaping the benefits of global recovery. Caterpillar last week raised its earnings forecast on demand from developing countries.
"You've got strong growth in India and China that provides demand for commodities," chief financial officer Ed Rapp said. "Most of the mining is happening in the developing parts of the world."
Gains in business investment are also supporting growth. Spending on equipment and software jumped to a 22pc annual rate, the biggest increase since 1997.