The US economy grew less strongly than previously thought during the second quarter as consumers boosted spending less vigorously and businesses trimmed some investments, a sign confidence was sagging even before financial market turmoil deepened.
The Commerce Department said today Gross Domestic Product, the measure of total goods and services output within US borders, expanded at a 2.8 per cent rate in the April-June second quarter rather than the 3.3 per cent rate it estimated a month ago.
"It pretty much corroborates the fact that the weakness in the US economy is really starting to take hold," said Boris Schlossberg, director of currency research at GFT Forex in New York.
"All the latest data that we have seen on the employment front and the production front suggest that GDP growth is going to slow materially into the second half of the year."
The new evidence of fading economic activity came amid confusion in Washington about whether a plan to bail out US financial firms by having the government use $700-billion of tax money to buy their bad debts can be revived.
President George W. Bush has warned the country faces a painful recession if it is not and the White House made a fresh appeal this morning for congressional unity on efforts to craft legislation that might calm markets.
The GDP data is backward-looking and was paid scant heed by markets amid the drama that gripped financial market participants in the US and globally. The dollar's value was little changed against other major currencies and stock futures already were tumbling.
While GDP growth was ahead of the first quarter's 0.9 per cent rate, economists surveyed by Reuters had forecast the second-quarter pace would be unchanged rather than revised down. There were signs that the turmoil that has engulfed Wall Street was already spreading to consumers and small businesses in the second quarter.
Personal spending that fuels two-thirds of national economic activity grew at a revised 1.2 per cent rate instead of 1.7 per cent previously estimated, partly because spending for costly durables like cars contracted more sharply.
Analysts expect consumers to keep retrenching in coming months as job losses mount and doubts about the economy's ability to stay out of recession grow.
Central banks around the world were pumping more cash into the financial system overnight, trying to keep credit markets from seizing up as a financial crisis went from bad to worse as US lawmakers argued over how to come to grips with it.
Businesses also appeared to be growing more wary about economic prospects in the second quarter. Spending on equipment and software, typically made when companies are planning production increases, shrank at a 5 per cent rate rather than the 3.2 per cent rate previously estimated.
It was the second straight quarter in which equipment and software spending contracted and was the steepest for any quarter since the beginning of 2002.
Companies cut their inventories at an annual rate of $50.6 billion in the second quarter.
That was higher than the $49.4-billion rate previously estimated and was nearly five times the $10.2-billion rate at which inventories were trimmed in the first three months - a potential sign that businesses are bracing for tougher times ahead.