US economy showing surprising resilience

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The Independent Online

Economics Correspondent

America's economic slowdown is less dramatic than expected, according to official figures released yesterday. The economy's surprising resilience has dampened hopes of further cuts in US interest rates.

The expansion in GDP in the second quarter was more than twice as high as the initial estimate, at a revised annualised rate of 1.1 per cent. Economists said the unexpected gain was likely to carry over into the rest of the year. Stephen Roach, a senior economist at Morgan Stanley in New York, said: ''This upward revision is an indication of an economy that is building momentum.''

A succession of buoyant statistics has shifted the weight of opinion on Wall Street against another reduction in interest rates to follow the quarter point cut at the beginning of July. ''Spending looks more robust than we thought, which makes it less likely that the Federal Reserve will move again,'' said Elias Bikhazi, an analyst at Deutsche Morgan Grenfell.

The main reason for the big upward revision to GDP was higher consumer spending, especially on durable goods and services. Total consumer expenditure, which makes up two-thirds of GDP, grew at a rate of 3.4 per cent. This compared with a first estimate of 2.5 per cent growth and an increase of only 1.6 per cent in the first quarter of this year. Spending on durable goods such as cars and washing machines rose by 2.9 per cent rather than the modest 0.4 per cent the preliminary figures had indicated.

A second factor was a revision to the estimate of farmers' inventories, a category that usually plays no role in calculations about the strength of the recovery. Rather than falling it rose. ''These figures confirm the picture of a slowdown in the real economy during the second quarter without a move into recession,'' said David Bloom, an economist at James Capel.

There was also a small shift up in the inflation figure for the second quarter. The GDP deflator, the widest measure of prices in the economy, increased by 1.6 per cent rather than 1.3 per cent. However, the US bond market took the revision calmly. Traders said the August employment figures and September purchasing managers' survey, both out tomorrow, will be more important.