Tax rebates of $78bn help US economy to avoid growth dip

The American economy grew modestly in the second quarter, according to official figures, which also showed that, on revision, output shrank during the final three months of 2007.

The bounce back from April to June saw growth rise to an annualised rate of 1.9 per cent, a relatively good result and an improvement on the 0.9 per cent in the first quarter of this year and the contraction of 0.2 per cent the statisticians now believe occurred in the last three months of 2007 (against an initial estimate of 0.6 per cent growth). Thus, the United States has managed to avoid falling into recession on the conventional definition of two successive quarters of negative growth.

However, analysts pointed out that growth of 2.3 per cent in the last quarter should have been seen, given the size of the recent boost to the economy from Federal funds of $91bn, out of a total of $168bn planned for the next two years. They also point to weak figures for investment and consumption, indicating lower growth in the future.

The worst-performing element of the economy was private investment, which fell by 14.8 per cent. Consumer spending increased only to 1.5 per cent from 0.9 per cent last quarter, even though $78bn in tax rebates had been despatched by the end of June. The brightest news came from the export sector, buoyed by a depreciating dollar, which saw growth of 9.2 per cent.

That has not been enough to save many American jobs. Fresh unemployment benefit claims rose last week to the highest level in more than five years. Initial jobless claims rose by 44,000to 448,000 in the week ended 26 July.