Expansion Shows Its Age

The U.S. economy downshifted significantly in the second quarter, the government said Friday, further allaying concerns that inflation is out of control.

In an advance estimate, the Commerce Department said gross domestic product expanded by 2.5% between April and June, about half a percentage point below economists' estimate. Growth was 5.6% in the first quarter.

Three price measures within the report were roughly in line with expectations. The personal consumption expenditures index rose 4.1% in the second quarter, while its core components rose at a 2.9% annual pace. The report's price index expanded at a 3.3% rate.

Growth in consumer spending fell from the first quarter but still beat estimates, coming in at 2.5%, compared with economists' forecast of 2.1%. Fixed investment by businesses rose 2.7%, down from 13.7% in the first quarter, while spending on new equipment fell 1%, its first decline since early 2003.

Stocks held steady on the news as investors weighed the report's inflation implications against the prospect of slowing economic growth. Futures on the S&P 500 were recently up 4 points, while the Nasdaq 100 was set for a 5-point gain.

The Federal Reserve, whose 17 consecutive quarter-point rate hikes now appear to be restraining the economy, next meets Aug. 8.

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