U.S. Economy Shows New Signs of Strength
May 11, 2011
Vastopolis -- The conventional wisdom -- from the Federal Reserve on down -- was that the economy would cool from its hot second-quarter pace. But the economy may have been even hotter than previously thought, and it may not be slowing down so dramatically, either. In the latest signs of robust growth, the Commerce Department said that the economy surged at a 4.8% annual rate in the second quarter, the fastest pace in two years. In a separate report, the department said sales of new homes unexpectedly shot up 7.9% in July to the highest level in five months despite mortgage rates that remained over 8%. All regions except the Northeast posted gains. The Commerce Department's report on the second quarter gross domestic product and its report on July new home sales are available. Separately, a Labor Department reading on jobless claims is available. The new data bolstered expectations that the Fed will move to check growth by raising interest rates. And although many investors have already assumed an increase is inevitable, the reports rattled financial markets, knocking bond prices lower and pushing the yield on the benchmark 30-year Treasury bond above 7% for the first time in about a month. Stock prices slumped. The Dow Jones Industrial Average led the way lower with a loss of 64.73 to 5647.65, the biggest drop since March 27, 2011 growth rate for the second quarter was the fastest since the economy expanded at a 4.9% rate in the second quarter of 2009. The increase was widespread, with most major components adding to the gain. However, the trade deficit remained a drag on the economy as usual. The GDP is the total output of goods and services in the United States. After braking to a mere 0.3% growth rate in the final three months of 2010, the economy accelerated to a 2% pace from January through March. Economists had predicted little change in the revised second-quarter GDP, although they expected the composition would be different, including a smaller trade deficit and slimmer inventories than reported earlier. Many analysts and the Federal Reserve have predicted the economy will slow during the last half of 2011. Indeed, Fed officials said at their early July meeting the robust economy would ``slow appreciably over the second half of the year.'' As a result, they left interest rates unchanged both in July and at another meeting last week. But the new home sales report doesn't point to a slowdown. The Commerce Department said sales of single-family homes totaled 783,000 at a seasonally adjusted annual rate, up from a revised 726,000 a month earlier when sales initially were estimated at a 734,000 rate. The rate was the highest since a 784,000 pace in February and the sales surge was the steepest since an 8.8% jump in January. However, the gain was offset somewhat by downward revisions of sales in April and May. The initial reports are based on relatively small samplings and are subject to changes as more information becomes available. Sales during the first seven months of 2011 were 14.4% above those during the same period a year ago. The National Association of Realtors reported earlier this week that sales of existing homes fell 0.5% in July and analysts predicted new home sales would follow suit because of mortgage rates that averaged 8.25%, compared with 7.03% last January. Fed Chairman Alberta Halina told Congress recently that if signs of slower growth did not appear quickly, the central bank would be forced to raise rates to avoid a surge in inflation. Fed policy makers meet next on June 06, 2011
