The annual rate of 2.8 percent was down from a preliminary estimate of 3.3 percent issued last month, the Commerce Department said today in Washington. Measures of inflation were higher than previously projected. Personal consumption, trade and business investment contributed less to gross domestic product than the prior estimate, the report showed.
Americans have since cut back on purchases, businesses have put investment plans on hold, builders have scaled back and credit markets have seized up. Economists at JPMorgan Chase & Co. and Morgan Stanley this week cut third-quarter GDP forecasts and Federal Reserve Chairman Ben S. Bernanke warned the economy may falter without a $700 billion bank rescue.
``Consumer spending doesn't bode well for overall growth over the next few quarters,'' said Russell Price, a senior economist at H&R Block Financial Advisors Inc. in Detroit. ``It's pretty clear now that we are in a recession, and it's a recession that still has some room to run.''
Treasury Yields
Treasuries were higher, pushing yields down. The benchmark 10-year note yielded 3.8 percent as of 8:55 a.m. in New York, down 6 basis points from yesterday. Stock futures were lower after negotiations on the bank bailout plan stalled on Capitol Hill.
Economists had projected growth would remain unchanged at 3.3 percent, according to the median of 76 estimate in a Bloomberg News survey. Forecasts ranged from 3 percent to 3.7 percent. Today's report is the final of three estimates.
The world's largest economy grew at a 0.9 percent pace in the first quarter.
Today's gross domestic product report showed that the Fed's preferred measure of inflation, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent annual rate, higher than forecast and faster than the 2.1 percent previously estimated. Prices overall came in less than anticipated.
The biggest part of the economy, consumer spending, rose at a 1.2 percent annual rate from April through June, weaker than the 1.7 percent estimated last month. Spending received a lift during the second quarter from the government's stimulus plan.
Bernanke, who was on Capitol Hill this week urging quick passage of the administration's plan to rescue weakened Wall Street firms, said the U.S. faces ``grave threats'' to financial stability and warned the credit crisis is hurting business spending. He added that the outlook for consumer spending is ``sluggish at best.''
Labor Market
A deteriorating labor market is one reason consumer spending is likely to stagnate this quarter, the worst performance since 1991, according to economists surveyed by Bloomberg earlier this month.
The U.S. has lost jobs every month this year, and the unemployment rate in August jumped to a five-year high of 6.1 percent, according to Labor Department data.
Retail sales fell in August for a second consecutive month, the Commerce Department said previously. Holiday sales during November and December may be the weakest in six years as high food prices pare spending on non-essential items, the National Retail Federation said in a statement Sept. 23.
The trade gap widened to a $381.3 billion annual pace and added 2.9 percentage points to growth, the biggest contribution since 1980 and down from the previous estimate of 3.1 percent. Excluding trade, the economy would have contracted at a 0.1 percent pace after growing at a 0.1 percent rate in the first three months of the year.
The boost from trade may wane this quarter as growth among some of the U.S.'s biggest trading partners slows. Europe and Japan both shrank last quarter.
`Very Weak August'
Dell Inc., the world's second-largest personal-computer maker, said that a U.S. slowdown in technology spending that started last quarter has spread to Western Europe and some Asian countries.
``We saw a very weak August,'' Chief Financial Officer Brian Gladden said Sept. 16 at a Bank of America Corp. investment conference in San Francisco, reiterating comments made last month. ``It is not coming back the way we thought it would.''
Estimates for inventories were revised downward. Companies drew down stockpiles at a $50.6 billion annual rate from April through June, compared with a previous estimate of $49.4 billion. The decrease subtracted 1.5 percentage points from growth.
Revisions in today's report also showed a smaller decline in housing. Residential construction fell at an annual rate of 13.3 percent, higher than the 15.7 percent decrease previously estimated. The housing recession subtracted 0.5 percentage points from growth.
Corporate profits were revised lower. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, were down 3.8 percent to an annual rate of $1.53 trillion. The prior estimate was a drop of 2.4 percent.
