Tax Rebates did Little to Help U.S Economy
By JEANNINE AVERSA, AP Economics Writer
Issue date: 6/23/08 Section: News
Consumers boosted their spending at a 1.5 percent pace in the second quarter. That was up from a 0.9 percent growth rate in the first quarter and marked the best showing since the third quarter of 2007 when the economy was still performing strongly despite the severe housing slump.
Billions of dollars in tax rebates, the centerpiece of the government's $168 billion stimulus package, spurred consumers to spend in some areas, a major force shaping overall economic activity. Spending on furniture and household appliances went up, while people cut spending on cars.
Meanwhile, sales of U.S. exports grew at a 9.2 percent pace in the second quarter, up from a 5.1 percent growth rate in the first quarter. The weak dollar has made U.S. goods cheaper to foreign buyers, helping to bolster exports.
Government spending also helped second-quarter GDP.
The housing slump continued to take a bite - although a smaller one - out of overall economic activity.
Builders cut back on residential projects by 15.6 percent, on an annualized basis, in the second quarter. That was not as deep as the 25.1 percent cut made in the first quarter or the 27 percent annualized drop in the final quarter of 2007.
Businesses showed caution in other areas. They trimmed spending on equipment and software and they reduced investment in inventories in the second quarter.
An inflation gauge tied to the GDP report showed all prices galloping ahead at a rate of 4.2 percent in the second quarter, the fastest pace since the end of last year.
However, when energy and food costs are stripped out, all other - or "core" - prices rose at a pace of 2.1 percent, down from a 2.3 percent rise in the first quarter. Still, the second-quarter's core inflation reading is outside the Fed's comfort zone.
Given mounting inflation fears, the Fed in June halted a nearly yearlong campaign of rate cuts to shore up the economy. It is expected to hold rates steady again next week. Boosting them too soon to fend off inflation could hurt the economy and the already crippled housing market.
Billions of dollars in tax rebates, the centerpiece of the government's $168 billion stimulus package, spurred consumers to spend in some areas, a major force shaping overall economic activity. Spending on furniture and household appliances went up, while people cut spending on cars.
Meanwhile, sales of U.S. exports grew at a 9.2 percent pace in the second quarter, up from a 5.1 percent growth rate in the first quarter. The weak dollar has made U.S. goods cheaper to foreign buyers, helping to bolster exports.
Government spending also helped second-quarter GDP.
The housing slump continued to take a bite - although a smaller one - out of overall economic activity.
Builders cut back on residential projects by 15.6 percent, on an annualized basis, in the second quarter. That was not as deep as the 25.1 percent cut made in the first quarter or the 27 percent annualized drop in the final quarter of 2007.
Businesses showed caution in other areas. They trimmed spending on equipment and software and they reduced investment in inventories in the second quarter.
An inflation gauge tied to the GDP report showed all prices galloping ahead at a rate of 4.2 percent in the second quarter, the fastest pace since the end of last year.
However, when energy and food costs are stripped out, all other - or "core" - prices rose at a pace of 2.1 percent, down from a 2.3 percent rise in the first quarter. Still, the second-quarter's core inflation reading is outside the Fed's comfort zone.
Given mounting inflation fears, the Fed in June halted a nearly yearlong campaign of rate cuts to shore up the economy. It is expected to hold rates steady again next week. Boosting them too soon to fend off inflation could hurt the economy and the already crippled housing market.
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