(BN) U.S. Economy Probably Shrank at Slower Pace in Second Quarter

By Shobhana Chandra
July 31 (Bloomberg) -- The U.S. economy probably shrank at a slower pace in the second quarter, a sign the worst recession in half a century is winding down, economists said before a report today.
Gross domestic product contracted at a 1.5 percent annual rate from April to June after dropping 5.5 percent the prior quarter, according to the median forecast of 78 economists surveyed by Bloomberg News. The report will also include benchmark revisions for prior quarters.
Profits at companies from Caterpillar Inc. to Dow Chemical Co. show the slump is easing as government efforts to revive lending and President Barack Obama’s stimulus take hold.
Consumer spending, which accounts for 70 percent of the economy, may take time to recover as job losses mount, eroding the growth analysts anticipate will start this quarter.
"We’ve definitely turned the corner but it’s going to be a slow, agonizing recovery," said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. "We’re just not going to get the job growth that politicians promised and people expect. The consumer doesn’t want to spend a lot."
The Commerce Department’s report on GDP, the sum of all goods and services produced, is due at 8:30 a.m. in Washington.
Survey estimates ranged from a 0.7 percent gain to a decline of
2.9 percent.
A drop would be the fourth in a row, the longest losing streak since quarterly records began in 1947. The contraction so far has been the deepest since 1957-58.

Less Spending

The report may show consumer spending dropped at a 0.5 percent pace, the third decline in the last four quarters, the survey showed.
The economy has lost 6.5 million jobs since the recession began in December 2007, and economists surveyed by Bloomberg this month forecast the jobless rate will exceed 10 percent by early 2010.
"The United States economy has found bottom but will be slow in recovering as unemployment continues to be a drag on consumer spending," Andrew Liveris, chief executive officer of Midland, Michigan-based Dow, said in a statement yesterday.
Second-quarter profit at Dow and at Peoria, Illinois-based Caterpillar, topped analysts’ estimates. Caterpillar, the world’s largest maker of construction equipment, said last week that stimulus programs in countries such as China were helping stabilize sales.

Slumps Easing

Recent reports showed the housing slump, which helped trigger the financial crisis last year, and the decline in manufacturing have eased. Housing starts rose in June as construction of single-family dwellings jumped by the most since 2004, Commerce reported earlier this month. Industrial production shrank in June at the slowest pace in eight months, according to figures from the Federal Reserve.
Most of the Fed’s 12 regional banks reported a slower pace of economic decline in June and July, the central bank’s regional survey of activity showed this week. Fed Chairman Ben S. Bernanke told Congress last week that there were "tentative signs of stabilization."
Companies probably cut stockpiles further last quarter, setting the stage for recovery in production.
"With inventory levels in an ultra-lean state, businesses should start adding inventories in the second half of the year as the economy begins to show signs of life," said Ellen Zentner, senior economist at Bank of Tokyo-Mitsubishi UFJ Ltd.

Automakers

General Motors Co. and Chrysler Group LLC, both out of bankruptcy, are among firms set to ramp up production as government efforts lift demand.
The "cash-for-clunkers" trade-in program begun this month has spurred 16,351 new-vehicle sales so far, the Transportation Department said this week. The plan has given out $68.9 million in subsidies out of the $1 billion set aside.
Economists project the economy will grow at an average 1.5 percent pace from July to December, according to a Bloomberg survey taken in early July. David Weidman, chief executive officer of Dallas-based chemical maker Celanese Corp., is among those seeing an improvement.
"We exited the quarter with increasing optimism," as rising demand offered "clear signs of economic recovery,"
Weidman said in an interview this week.
The Standard & Poor’s 500 Index and Dow Jones Industrial Average are up 12 percent since July 10 on better-than- anticipated earnings at companies from Motorola Inc. to 3M Co.
The country "may be seeing the beginning of the end of the recession," Obama said this week. Even so, "we know the tough times aren’t over."