New York, August 2--Many economists expect the U.S. economy to regain momentum after slowing in the second quarter, but those forecasts hinge on a fall in energy prices that so far has proved elusive.
The nation's gross domestic product -- the total value of goods and services produced, adjusted for inflation -- increased at an annual rate of 3% in the second quarter, the Commerce Department reported. Economists generally had expected a rate of more than 3.5%. But the department also raised its figure for GDP growth in the first quarter to 4.5% from an earlier estimate of 3.9%.
Many economists still expect economic growth to accelerate in the second half. Those forecasts generally assume that energy prices, including gasoline, will decline modestly in the months ahead. In recent days, however, crude-oil prices have risen again.
Energy prices are the "key risk" to forecasts for the second half, said Mark Zandi, chief economist at Economy.com Inc., a research firm in West Chester, Pa. He forecasts that the economy will expand at a 3.5% pace in the second half. But "if energy prices stay high or move seriously higher, we'll all be quickly marking down our forecasts," Zandi said.
If the economy manages only a 3% growth rate in the second half, that could be a problem for President Bush's re-election campaign, Zandi said. That level of growth wouldn't be enough to prevent the unemployment rate from "ticking up again," he said. Growth of 3.5% would hold unemployment steady, while expansion of 4% or more is needed to bring the jobless rate down substantially, he said.
The U.S. government reports the politically important unemployment rate for July on Friday. The jobless rate for June was 5.6%.
The economic data are unlikely to affect the Federal Reserve's plan to keep raising interest rates gradually. The central bank is likely to boost its overnight money-market rate target to 1.5% from 1.25% at its meeting Aug. 10. Fed Chairman Alan Greenspan said two weeks ago that the economy was in a "soft patch," but said it probably would be short-lived.
Greenspan blamed most of the second-quarter slowdown on high oil prices. While crude prices have continued to rise, that might be absorbed through a narrowing of unusually wide gasoline retailers' margins, rather than being passed through to consumers. Greenspan has been cheered by other data showing a rebound in consumer and business spending in July.
Some recent reports have unsettled Fed officials, such as a weak gain in durable-goods orders in June. But against that are surveys of business people suggesting that companies still see broad-based growth. Fed officials believe growth numbers eventually should converge toward the optimistic picture painted in those surveys.
