A Commerce Department report released in late July that said the economy grew at an annual rate of just 1.1 percent in the second quarter of 2002 confirms the forecast of Dave Huether, chief economist of the National Association of Manufacturers, Washington, D.C. Huether said this manufacturing recovery will be more gradual than earlier ones.
“Today's report is a mix of the expected and the unexpected,” Huether said. “To no one's surprise, inventory restocking, which was responsible for over half of real GDP in the first quarter, slowed substantially. Also, consumer spending, which rose by only 1.9 percent, continued to decelerate from the brisk pace at the end of last year.
“On the plus side, the expected recovery in business investment finally appears to be underway,” Huether said. “Following six quarters of negative growth, business investment grew by 2.9 percent in the second quarter.This is good news but it cements our earlier predictions that this manufacturing recovery was going to be more gradual than usual.
“The most unexpected surprise in the Commerce Department advanced report was net exports which took away 1.8 percentage points from GDP growth during the second quarter,” Huether said. “Exports grew a strong 11.7 percent — the strongest showing in two years — but were swamped by a 23.5 percent surge in imports. Though growing exports is good news, U.S. sales abroad are still below their peak reached in mid 2000.
“Clearly, the export recovery has a long way to go,” Huether said. “But with the dollar moving toward a position more in-line with economic fundamentals and recoveries underway abroad, we should expect to see exports continue on an upward path later this year.
“Despite a dramatic slowdown from 5 percent growth in the first quarter, there is a silver lining in today's report of lower-than-expected GDP growth in the second quarter,” Huether concluded. “After a year and a half of decline, recoveries in investment and exports, both critical components of long-term growth, appear to be gaining steam. This is a positive signal that we can expect stronger growth for the second half of the year.”