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ECONOMIC REPORT
GDP revised down to 2.6% rate in the second quarter
By Greg Robb, MarketWatch
Last Update: 8:30 AM ET Sep 28, 2006
WASHINGTON (MarketWatch) - Second quarter U.S. growth increased at a 2.6% rate, slightly lower than previous estimates of a 2.9% growth rate, the Commerce Department said Thursday.
The downward revision was unexpected. Economists surveyed by MarketWatch had been forecasting second-quarter GDP to remain unrevised at a 2.9% rate. See Economic Calendar.
Economic growth has averaged a 3.6% rate over the past four quarters. The economy expanded at a 5.6% rate in the first quarter.
The revisions to second-quarter GDP were largely due to lower inventory investment and a worsening trade balance.
Final sales of domestic product increased 2.1%, down from 2.3% in the previous estimate.
As in the previous estimates of second-quarter gross domestic product, consumer spending was the main engine of growth, rising at a 2.6% annual pace. But this is down from an increase of 4.8% in the first quarter.
There were signs of a weaker economy. Spending on software and equipment fell 1.4%, the biggest drop since the fourth quarter of 2002.
And residential investment, reflecting the slumping housing market, fell 11.1%, the largest decline in 11 years.
Inflation
Key inflation data were revised marginally lower. The core inflation measure, closely watched by the Federal Reserve, rose 2.7% in the second quarter, down from 2.8% reported earlier. The year-over-year change was revised down to 2.2% from the previous estimate of 2.3%. This is still above the Fed's comfort zone of 1% to 2%.
Profits
Corporate profits were revised lower to an increase of 1.4%, compared with the previous estimate of a 3.2% increase. This is the smallest gain in quarterly profits since the third quarter of 2005. In the past year, before-tax profits are up 18.5%.
Greg Robb is a senior reporter for MarketWatch in Washington.
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