Economy gains traction in spring; shrank year-end

[July 31, 2008]  WASHINGTON (AP) -- Economic growth picked up in the second quarter as tax rebates energized consumers. The rebound followed a treacherous patch where the economy jolted into reverse at the end of 2007.

The Commerce Department reported Thursday that gross domestic product, or GDP, increased at an annual rate of 1.9 percent in the April-to-June period. That marked an improvement over the feeble 0.9 percent growth logged in the first quarter of this year and an outright contraction in the economy during the final quarter of last year.

Still, the second-quarter rebound wasn't as robust as economists had hoped; they were forecasting growth to clock in at a 2.4 percent pace. The rebound, while welcome, isn't likely to be seen as a signal that the fragile economy is out of the woods. There are fears that as the bracing tonic of the tax rebates fades, the economy could be in for another rough patch later this year.

The health of the economy is the top concern of the public -- and by extension politicians including candidates vying for the White House.

GDP actually contracted by 0.2 percent, on an annualized basis, in the last three months of 2007, according to annual revisions released by the government.

That contraction reflected the deepest cuts in 26 years from builders clobbered by the housing slump and caution on the part of consumers spooked by all the fallout.

The fourth-quarter's dip marked the worst showing since the third quarter of 2001, when the economy was last in a recession. The government's old estimate for the final quarter of last year was in positive territory -- but not by much -- at an anemic 0.6 percent growth rate.

GDP measures the value of all goods and services produced within the United States and is the best barometer of the country's economic fitness.

A pickup in consumer spending and brisk sales of U.S. exports abroad figured prominently in the second-quarter improvement.

Consumers boosted their spending at a 1.5 percent pace in the second quarter. That was up from a 0.9 percent growth rate in the first quarter and marked the best showing since the third quarter of 2007 when the economy was still performing strongly despite the severe housing slump.

Billions of dollars in tax rebates, the centerpiece of the government's $168 billion stimulus package, spurred more spending in some areas by consumers, a major force shaping overall economic activity. Spending on furniture and household appliances went up, while people cut spending on cars.

Meanwhile, sales of U.S. exports grew at a 9.2 percent pace in the second quarter, up from a 5.1 percent growth rate in the first quarter. The weak dollar has made U.S. goods cheaper to foreign buyers, helping to bolster exports.

Government spending also helped second-quarter GDP.

The housing slump continued to take a bite -- although a smaller one -- out of overall economic activity.

Builders cut back on residential projects by 15.6 percent, on an annualized basis, in the second quarter. That was not as deep as the 25.1 percent cut made in the first quarter or the 27 percent annualized drop in the final quarter of 2007.

Businesses showed caution in other areas. They trimmed spending on equipment and software and they reduced investment in inventories in the second quarter.

[Associated Press; By JEANNINE AVERSA]

Copyright 2008 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.