Posted on 08/30/2006 2:43:38 PM PDT by So Cal Rocket
WASHINGTON (Reuters) - The economy grew at a faster clip in the second quarter and inflation was slower than originally reported, a government report said on Wednesday, suggesting the Federal Reserve will keep interest rates steady.
The U.S. economy grew at a 2.9 percent annual pace in the second quarter, faster than the 2.5 percent rate initially reported but marginally below what analysts were expecting, as higher business investment offset a drop in residential construction, a Commerce Department report showed.
At the same time, an inflation gauge favored by the Federal Reserve -- which measures personal consumption expenditure prices minus food and energy -- was revised to 2.8 percent, the biggest rise since the first quarter of 2001. The inflation index originally was reported to have risen by 2.9 percent when figures were released last month.
"Overall we are seeing softer inflationary pressures," said Kathy Lien, chief strategist at Forex Capital Markets in New York. The report lessens "the likelihood that the Fed will have to resume rate hikes any time soon," she said.
U.S. Treasury debt prices rose on expectations that the Fed will keep any rate rises on hold, pushing benchmark yields to five-month lows. The dollar, which benefits from higher rates, was little changed, while U.S. stocks were up slightly in morning trading.
Analysts polled by Reuters were expecting gross domestic product growth estimates for the April-June quarter to be revised up to a 3 percent annual pace.
A separate report by a private employment services group showed private sector employers adding 107,000 jobs in August.
Setting aside the Hurricane Katrina-affected final quarter of last year, the U.S. economy in the second quarter grew at the slowest pace since a 2.6 percent gain in the fourth quarter of 2004, as home-building investment had its biggest decline in more than 10 years, the Commerce Department said.
The president of the Dallas Fed Bank said the upward revision to second-quarter growth "helps keep things in perspective" in terms of the U.S. economic slowdown.
"The economy is slowing, but this number is pretty healthy number for an economy of our size, given the high level of growth in the first quarter," Dallas Fed Bank President Richard Fisher told reporters after a speech to a real estate group in Dallas.
Business spending on buildings, plants and factories rose by 22.2 percent in the second quarter, more than originally thought. It was the biggest gain in nonresidential fixed investment in structures since the second quarter of 1994.
However, in a sign the housing sector is cooling rapidly, investment on residential structures fell 9.8 percent, the biggest decline since a 12.2 percent fall in the second quarter of 1995, the Commerce Department said.
Also, U.S. mortgage applications fell for the first time in four weeks as demand for home purchase loans dropped to the lowest level in nearly three years, a report from the Mortgage Bankers Association said.
Investments in inventories, exports, and spending by state and local governments were also higher than first thought.
But business investment in equipment and software was revised to a larger decline of 1.6 percent, the biggest drop since the fourth quarter of 2002.
Corporate profits after taxes rose 2.1 percent in the second quarter, well below the 14.8 percent rise in the first three months of the year.
The Federal Reserve has been counting on a slowdown in economic growth to keep inflation in check. Minutes of the Fed's August 8 policy meeting -- when the Fed halted a two-year string of interest-rate increases -- showed policy makers concerned about rising prices but patient on the need for more rate hikes as they awaited further economic data.
The ADP Employer Services report showing 107,00 new jobs comes two days before the government's nonfarm payrolls data, which are expected to show 120,000 new jobs in the month, up from 113,000 in July.
No joke, an upward revision means, by definition, GDP was better than expected.
It's almost sad.
I nearly broke my brain doing the mental gymnastics required to read the headline.
Every silver lining must have its cloud and it looks like Al Reuters found it.
Oldest, tiredest trick in the propogandist textbook. Negative headline on a positive news story, hoping people just browse the headlines.
That headline took some work. Amazing.
Headline writers, CG Operators (television graphics) and Webmasters all tend to be younger, just out of college liberals.
It's amazing how much information they control. They know it. The Left knows it.
LOL, only Reuters could pull of this double gainer...spinning a positive into a negative.
The economy grew faster and inflation slower...but the MSM can still find bad news. It is tempting to say they are a joke, but they are still fooling too many people.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.