U.S. Q2 GDP expanded by 2.4 percent

Sunday, 01 August 2010 12:29 Kendrick Chua

The United States’ Gross Domestic Product (GDP) slowed down to an annualized 2.4 percent on an annual basis showing signs that the recession was worse than expected and unemployment problems persist. First quarter GDP was revised sharply higher to 3.7 percent. The economy has expanded for the past four quarters when recession ended some point in the middle of 2009.

A survey conducted by Bloomberg News revealed that the 81 economists polled projected a 2.6 percent growth.

Analysts wish to see GDP growth of five to six percent to absorb the massive losses brought about by the 8 million unemployed citizens. However, it would seem improbable at this point.

Consumer spending, which stands 70 percent of the economic activity, grew at 1.6 percent for the second quarter, down twenty basis points from the first quarter revision. Because of high unemployment, households are curbing their purchases. It contributed 1.15 percent to the GDP.

Moreover, trade deficits—when imports are higher than exports—cut 2.78 percent off the GDP. It was the biggest reduction since 1982. Imports grew at 29 percent, offsetting the 10 percent growth of the exports. And at the rate all these are going, analysts continue to see lower-than-expected economic results.

But despite all these foreboding indicators, there is still a reason to be optimistic. Second quarter earnings have been beating expectations as global demand continued to surge and cost-cutting measurements contributed to the overall bottomline. Positive corporate earnings help to douse fears that the country may enter a double-dip recession.

U.S. stocks best monthly gain this year

U.S. equities had a see-saw battle as investors digested the results of the second quarter GDP. Stocks made a last rally towards the final stretch. The Dow Jones Industrial Average (DJIA) gained 21 points; the S&P500, 1.92 points; and the NASDAQ Composite another 4.61 points.

Overall, stocks saw their greatest monthly gain this year with the Dow Jones and S&P500 gaining seven percent this July. The rise was supported by strong quarterly earnings from major U.S. companies. It could have gone higher, though, had it not been for the lower-than-expected GDP.

Analysts are saying next week could see further gains if the employment report comes out better.

Photo: “American Flag of the United States of America (USA Flag)” by Jonathon Colman, c/o Flickr. Some Rights Reserved

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