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 later 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, or GDP, 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 of a 2.7 percent growth rate.
The rebound followed two dismal quarters. The economy actually 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 was the best performance since the third quarter of last year, when the economy was chugging along at a brisk 4.8 percent pace.
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White House press secretary Dana Perino said the numbers demonstrated the economy's resilience in the face of many challenges. But she 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.
Federal Reserve Chairman Ben Bernanke has warned the economy will be weak through the rest of 2008. Economists believe growth will slow in the July-September quarter to a pace of around 1.5 percent, and will turn even weaker in the fourth quarter. Some experts, including Martin Regalia, chief economist for the U.S. Chamber of Commerce, think the economy might jolt into reverse yet again.
The economy is the top concern for Americans. Democratic presidential nominee 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 monthly and wage growth is trailing inflation. That combination raises concerns about the future of consumer spending, one of the pillars underpinning the economy.
With the economy still faltering, the Fed is expected to hold interest rates steady at its next meeting on Sept. 16, and probably through the rest of this year.