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Economic Gains Likely To Be Brief

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By JEANNINE AVERSA

The Associated Press

Published: August 29, 2008

WASHINGTON - The economy pulled out of a dangerous rough patch in the spring, thanks largely to strong exports, but the rebound isn't expected to last. Economic slowdowns overseas could make exports tail off just as Americans are hunkering down after the bracing impact of rebate checks wanes, plunging the country into another rut this year.

"There will be heavy sledding for the U.S. economy during the next couple of quarters," predicted Lynn Reaser, chief economist at Bank of America's Investment Strategies Group.

Gross domestic product grew at a 3.3 percent annual rate in the April-June quarter, its fastest pace in nearly a year, the Commerce Department reported Thursday. The revised reading was much better than the government's initial estimate of a 1.9 percent pace and exceeded economists' expectations for a 2.7 percent growth rate.

The rebound followed two dismal quarters. The economy shrank in the final three months of 2007 and barely budged in the first quarter at a minuscule 0.9 percent pace. The 3.3 percent growth in the spring was the best performance since the third quarter of last year, when the economy was chugging along at a brisk 4.8 percent pace.
White House press secretary Dana Perino said the numbers demonstrated the economy's resilience in the face of many challenges, but added: "No one is doing a victory dance."

Others agreed that the growth pickup wasn't a sign of better days ahead. Analysts predict the second quarter will represent the high point for economic activity this year.

It's "the last hurrah for this economic cycle," said Martin Regalia, chief economist for the U.S. Chamber of Commerce.
Federal Reserve Chairman Ben Bernanke has warned the economy will be weak through the rest of 2008. Economists think growth will slow in the July-September quarter to around 1.5 percent, and will turn even weaker in the fourth quarter. Some, including Regalia, think the economy might jolt into reverse again.

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

The economy is the top concern for Americans. Democratic presidential contender Barack Obama favors a second government stimulus package, while Republican rival John McCain supports free trade and other business measures to buttress the economy.

On Wall Street, the GDP report lifted stocks. The Dow Jones industrials jumped 212.67 points to close at 11,715.18.

For months, housing, credit and financial troubles have hammered the economy.

In turn, employers have clamped down on hiring, driving the nation's unemployment rate up to 5.7 percent in July, a four-year high. The Labor Department said Thursday that the number of people signing up for jobless benefits declined last week for the third straight period, but remained above 400,000 - an indicator of a slowing economy.

Employers have cut jobs every month this year and wage growth is trailing inflation. That combination raises concerns about the future of consumer spending, one of the pillars underpinning the economy.

The biggest factor in the GDP's second-quarter rebound was robust sales of U.S. exports. The weaker value of the U.S. dollar has bolstered those sales, which accounted for half of the gain in GDP. Exports grew at a 13.2 percent pace in the spring, more than double the 5.1 percent growth rate logged in the first quarter.

Imports, meanwhile, fell at a 7.6 percent annualized pace in the spring, as economic troubles in the United States crimped demand for foreign-made goods. The improved trade picture added 3.1 percentage points to second-quarter GDP, the most since 1980.

U.S. consumers did boost their spending at a 1.7 percent pace in the second quarter, the best showing in nearly a year. But many expect consumers to pull back in the months ahead as unemployment rises, paychecks shrink and their homes continue to sink in value.

The effects of the housing market's collapse were evident in the report. Builders cut back at an annual rate of 15.7 percent in the second quarter- although that was a better showing than early this year and late last year.

AT A GLANCE

STRONG GROWTH: The U.S. economy grew in the spring at a 3.3 percent pace. The best gross domestic product results in nearly a year beat Wall Street's expectations.

THE MAIN DRIVER: Strong sales of U.S. exports to foreign buyers helped bolster the GDP, while government tax rebates energized shoppers at home.

THE OUTLOOK: The growth is unlikely to last. Economic slowdowns overseas could dampen exports just as the bracing impact of government rebate checks for U.S. consumers wears off.

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