Friday, August 31, 2007

Economy Expands at a 4% Annual Rate

Wall Street bulls applauded the release of the GDP report yesterday, as the numbers pointed to a reviving economy and a brighter future, despite all the recent turmoil and housing glut. The US economy expanded at an annual rate of 4% in the second quarter, the fastest pace in more than a year.

Exports surged for the quarter, and coupled with a smaller gain in imports, contributed to a 1.4 percentage point gain. Business spending was also a positive. Commercial construction increased by 28%, the most since 1981, and equipment investment increased 4.3%, double the previous estimate.

Residential construction, as expected, subtracted a 0.6 percentage point from growth. The downturn will probably continue for a little bit longer, with a projection of a negative 1 percentage point against GDP into the 2008.Consumer spending, too, came in a little weak. It accounted for 1.4 percentage points of the GDP number. The number beat estimates, but the gain was still the smallest in a year.

Overall, the economy is growing at a moderate pace. Inflation seems to be contained, with the report showing an annual increase of 1.3%, the smallest gain in 4 years. Corporate profits are still booming, surging forward at a rate of 6.4%, compared to 4.5% a year earlier. And despite the housing slowdown and the tightening credit markets, exports and business spending continue to be the driving force, and will be, into next year.

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