US slashes growth estimates to lowest levels for over eight years

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The Independent Online

The estimate of American economic growth was slashed yesterday to its lowest level for more than eight years but defied gloomy forecasts of zero growth – or worse.

The estimate of American economic growth was slashed yesterday to its lowest level for more than eight years but defied gloomy forecasts of zero growth – or worse.

The world's largest economy grew at an annual rate of 0.2 per cent – close to stagnation – in the three months to June compared with an initial estimate of 0.7 per cent. This is the worst performance since 1993.

The breakdown of the figures showed businesses had run down their stocks by £38.4bn, the fastest rate since the recession of the early 1980s.

At the same time, companies slashed investment in equipment and software by more than 15 per cent – the steepest drop since 1980.

But the corporate slowdown was offset by consumer spending growth, which was revised up to 2.5 per cent, in the latest indication that households are ignoring gloomy predictions of a recession.

Many analysts had expected either flat or negative growth and some highlighted positive growth as a sign of recovery.

Optimists said that with consumer spending holding up and stocks at low levels, any sign of a recovery in demand would lead to strong business growth.

Others said the absence of headlines about a contracting economy, tax rebate cheques starting to arrive in mailboxes and previous interest rate cuts feeding through, consumer confidence would get a boost.

Mark Cliffe, global economist at ING Barings, said this was "a tentative sign" that the US slowdown had reached its trough.

"This is positive for growth in the second half of the year to the extent that producers have cut back and, provided demand holds up, there is a good chance output will increase for the rest of the year," he said.

"We're not going to be in a recession. Recovery is on the horizon," said Paul Kasriel, an economist at Northern Trust in Chicago.

But those arguments failed to convince the financial markets, which after a muted rise after the data were released, fell sharply on the weak figures.

By noon, the Dow Jones had fallen 107 points, or 1 per cent while the Nasdaq was down 25 points, or 1.4 per cent.

Robert Macintosh, chief economist at Eaton Vance Management, said: "The market is going to interpret this at first favourably, but a more rational interpretation is that it is pretty darn weak."

President George W Bush said the economic recovery seemed "very slow in coming".

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