MercoPress. South Atlantic News Agency

US grows 3.8% in second quarter; housing still falling

The United States expanded 3.8% in the second quarter in spite of the mid year credit crunch, weak housing and forecasts of a slowing down, according to a revised estimate released Thursday by the US Department of Commerce. In the first quarter the US economy expanded a sluggish 0.6%.

The figure was roughly in line with Wall Street 3.9% annualized growth rate estimate but analysts also cautioned that the report included "old" data with minimal significance for the current circumstances. In effect recent data highlights the woes facing the US economy: new US homes sales slid 8.3% in August to their lowest level in seven years, with prices falling to 2005 levels. Analysts fear that housing weakness could spread to consumer spending because of faltering household net worth. The Federal Reserve last week cut key interest rates by half a percentage point, admitting downside risks to the economy have increased. The Commerce Department said the downward revision to growth reflected an increase in imports of both goods and services, which subtract from GDP expansion. Imports fell a revised 2.7% in the quarter, not as steep a decline as the 3.2% estimated earlier. However exports boosted by a weaker dollar rose 7.5% in the second quarter. Meanwhile, the Federal Reserve's preferred measure of inflation was revised slightly higher for the quarter. The core personal consumption expenditures (PCE) price index, which excludes volatile food and energy prices, rose by 1.4% in the quarter which is higher than the 1.3% estimated a month ago. On an annual basis the PCE price index rose 4.3% in the quarter, revised from the 4.2% in the earlier estimate. Consumer spending, which accounts for as much as two-thirds of the economy, rose an unrevised 1.4% in the second quarter, slower than the 3.7% for the first quarter. Housing remains the main drag on growth. Spending on residential investment declined 11.8% in the second quarter, after plunging 16.3% in the first quarter. The US GDP based on the second quarter figures is equivalent to 13.768 trillion dollars.