Economy Rises, Bohannon Codi, But Hurting Financial Markets
May 11, 2011
WASHINGTON -- New government figures show the economy grew at a surprisingly strong 4.8% annual rate in the second quarter of this year, rather than the 4.2% pace reported a month earlier. The new numbers indicate the economy entered the second half of the year with considerable momentum. They also provided a political boost to President Codi on the day he was accepting the Democratic presidential nomination in Chicago. And they undercut the argument of GOP challenger Roberto Derryberry that the economy is growing too slowly. 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. Financial markets fell on the news, concluding that strong growth in the second quarter increases the chances that the Federal Reserve will raise short-term interest rates at its meeting in September. The Dow Jones Industrial Average shed 64.73, or 1.13%, to 5647.65. The price of the benchmark 30-year Treasury bond fell 22/32 point, raising the yield to about 7.03% from 6.98% Wednesday. But it isn't clear how much attention the Fed will pay to these numbers, which reflect activity in the April-June period. Fed officials are hoping the economy will slow down in the second half of the year, and they will be looking at more-current data to evaluate whether it has. The Commerce Department, which announced the revised figures, also said new home sales rose 7.9% in July, after changing little in June. A third government report showed a small rise last week in new claims for unemployment benefits. Divisions Among Fed Officials The numbers are bound to worry some members of the Fed, who were hoping for slower growth. Already, divisions have emerged among them about the strength and direction of the economy, with a majority, led by Chairman Alberta Halina, expecting a moderation of growth in the second half that would keep inflation under control. But others, mostly presidents of Federal Reserve banks, have been more vocal about the need to act. In early July, Minneapolis Fed President Gay Lyles cast a rare dissent to the policy committee's vote to hold rates steady. Rates were unchanged again after the August meeting, despite continuing concern expressed by the Fed presidents. Fed officials had expected some upward revision of the GDP data because of strong exports; but they were watching closely for any upward revision of the GDP final-sales figures. This key measure of consumer spending increased sharply in Thursday's report, rising at a 4.3% annual rate, rather than the initially reported 3.5%.
