AP News

Ahead of the Bell: Economy-GDP

WASHINGTON (AP) — The U.S. economy likely grew at a slightly faster rate than first estimated for the April-June quarter, setting the stage for a modest improvement in growth during the second half of the year.

Economists expect the overall economy grew at an annual rate of 1.7 percent in the second quarter, according to a survey by FactSet. The Commerce Department will release the new report at 8:30 a.m. Eastern time on Wednesday.

The new estimate for growth is expected to be slightly better than the 1.5 percent reported last month.

A significantly lower trade deficit and stronger construction spending are expected to boost the government's initial estimate of growth.

Still, growth below 2 percent is too weak to lower the unemployment rate. And most economists expect growth to pick up only modestly in the second half of this year.

Many economists believe growth in the current July-September quarter and the final three months of this year will average around 2 percent at an annual rate.

Growth at that level means that the current 8.3 percent unemployment rate will likely remain stuck above 8 percent for the rest of this year.

The report on economic growth measures the gross domestic output, the country's total output of goods and services, from the purchase of restaurant meals to construction of highways and bridges. The report Tuesday was the government's second look at GDP for the spring quarter. There will be a third and final estimate of second quarter GDP released next month.

Economists generally say even 2 percent annual growth would add only about 90,000 jobs a month. That's too few to keep up with population growth and drive down the unemployment rate, which edged up in July to 8.3 percent. The lackluster economy is raising pressure on President Barack Obama in his re-election fight with Republican candidate Mitt Romney.

The administration argues that Congress could strengthen growth and job creation by adopting Obama's plan to extend expiring tax cuts for all except the wealthiest Americans. The issue is blocked in Congress because Republicans want the tax cuts extended for all Americans.

The economy is facing a number of threats ranging from Europe's debt crisis, which has sent many countries in that region into recessions that are expected to harm U.S. export sales. Also, economists are worried about the uncertainty stemming from the policy gridlock in Congress.

Without a budget deal by January, the Bush-era tax cuts are scheduled to expire and spending cuts will be imposed on hundreds of government programs.

Last week, the Congressional Budget Office warned that if this budget stalemate is not resolved, the resulting increase in taxes and cuts in government spending would likely push the country into a recession next year and cost 2 million jobs by the end of the year.

The Federal Reserve is weighing whether to bolster its support for the economy. The most dramatic move the Fed could take would be to announce a new round of bond purchases aimed at driving long-term interest rates down in an effort to stimulate economic activity.

The Fed next meets on Sept. 12-13, but it is possible Federal Reserve Chairman Ben Bernanke will provide some signals on future Fed moves in a widely anticipated speech at a Fed policy conference in Jackson Hole, Wyo., this Friday.

After shrinking 3.1 percent in 2009 in the midst of the recession, the economy grew 2.4 percent in 2010. Last year, growth slowed to 1.8 percent — roughly the same meager pace at which the economy expanded in the first half of this year.

Annual economic growth of 2.5 percent to 3 percent is needed to create enough jobs just to keep up with an expanding workforce. Healthier growth of 4 percent or more is needed to reduce the unemployment rate significantly. The current economic recovery passed the three-year mark in June, but by all measures it has been the weakest expansion of any since the Great Depression.

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