GDP Growth Revised Lower to 1.6%

WASHINGTON (TheStreet) -- Economic growth in the second quarter was even more tepid than originally reported, the government said Friday, which more or less validates other recent economic indicators pointing to a slowdown in the recovery.

The government said further revisions to trade stats and inventories were the main factors weighing on the GDP figures.

The Commerce Department revised its quarterly gross domestic product estimate sharply lower to a seasonally adjusted 1.6% annual growth pace. Though the slowing growth pace is still disappointing compared with the red-hot growth experienced at the end of last year, the figure still came in slightly ahead of the expectations of market observers. Many were projecting the growth pace to slow further to 1.4%, according to consensus projections provided by Briefing.com.

This was the second estimate on the nation's economic picture for the quarter. Back in July, the government initially said GDP grew at a 2.4% pace during the second quarter.

The government explained the difference between the two readings reflected several specific revisions between the two. For one, the trade deficit widened even more than expected. Imports, which act as a drag on GDP and were originally thought to have surged 29% according to the advance estimate, were revised higher to show a 32.4% jump in the second quarter.

Firms eased back on liquidating inventories and began restocking their shelves coming out of the recession after severe cuts, which helped drive GDP growth to begin the year. The economy grew at a 3.7% pace in the first quarter and a 5% rate in the fourth quarter of last year. But those inventory rebuilding efforts slowed in the second quarter, and even more than expected between the advance report in the second quarter and the latest assessment. Change in inventories, which originally contributed 1.05 percentage points to GDP in the Commerce Department's first read, was revised lower to reflect a gain of 0.63 percentage points in the report Friday.

But the government also highlighted some positive news. As the country's consumers felt the sting of job losses and dwindling incomes, consumer spending appeared to take a hit in the first read on GDP, rising by a lighter-than-expected 1.6% during the April-to-June period. But that tally was revised higher in Friday's revised assessment, instead showing 2% growth during the second quarter. That sum modestly topped the 1.9% reported for the first quarter.

Fixed nonresidential investment on equipment and software -- one of a few measures looking at business spending -- was also revised up to show a 24.9% surge, rather than the 21.9% jump reported in the first read. Business investment, overall, grew at a 17.6% growth pace in the quarter.

A third estimate on second-quarter growth is schedule for release at the end of September.

With a better-than-expected GDP print on the books (or, maybe, just a less bad figure), stocks began Friday's session on a mild upswing. Just after the opening bell, the Dow Jones Industrial Average was gaining 68 points, or 0.7%, to 10,054, the S&P 500 was improving by 6 points, or 0.6%, at 1053, and the Nasdaq was climbing up 17 points, or 0.8%, to 2136.

--Written by Sung Moss in New York.

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