On Air Now

Upcoming Shows

Program Schedule »

Listen

Listen Live Now » 1450 AM Holland, MI

Weather

Current Conditions(Holland,MI 49422)

More Weather »
39° Feels Like: 35°
Wind: ESE 6 mph Past 24 hrs - Precip: 0”
Current Radar for Zip

Tonight

Clear 33°

Tomorrow

Mostly Sunny 64°

Sun Night

Partly Cloudy 40°

Alerts

Weak auto output, pricey gasoline to clip Q2 growth

Chevrolet Cruze chassis move along the assembly line at the General Motors Cruze assembly plant in Lordstown, Ohio July 22, 2011.
Chevrolet Cruze chassis move along the assembly line at the General Motors Cruze assembly plant in Lordstown, Ohio July 22, 2011.

WHAT: First reading on U.S. second-quarter GDP

WHEN: Friday, July 29, at 8:30 a.m. EDT

FACTORS TO WATCH

A contraction in motor vehicle production because of a shortage of parts from Japan and high gasoline prices that curbed consumer spending, probably kept the U.S. economy on a slow growth path in the second quarter.

Growth in the world's biggest economy is projected to have weakened to a 1.8 percent annual rate after a tepid 1.9 percent pace in the first three months of the year.

The economy would need to grow at a rate of 2.5 percent or better on a sustained basis to chip away at the nation's 9.2 percent unemployment rate.

Consumer spending, which accounts for about 70 percent of U.S. economic activity, is expected to have decelerated sharply to a rate between 0.6 percent and 0.9 percent -- the weakest since the end of the 2007-09 recession two years ago.

Spending grew at a 2.2 percent pace in the first quarter.

The March earthquake in Japan severely disrupted U.S. auto production and the resulting shortage of motor vehicles weighed on retail sales. Consumer spending was also crimped by high gasoline prices, which limited spending on other goods and services.

Motor vehicle production is expected to have subtracted as much as a full percentage point from gross domestic product growth in the second quarter, after adding 1.18 percentage points to first-quarter GDP growth.

Preliminary data from the Federal Reserve shows motor vehicle production contracted at a 16.4 percent annual rate in the second quarter after expanding at a 29.2 percent pace in the prior period.

The easing of the auto parts disruptions and a decline in gasoline prices are widely expected to be a tail wind to third-quarter growth, but the composition of growth in the April-June quarter is likely to be generally weak and could prompt economists to dial down their expectations for a quick and solid rebound in third-quarter growth.

But risks remain stacked against the economy. Investors are anxiously waiting for the U.S. Congress to raise the country's debt limit and avoid a damaging debt default that could tip the economy over the edge.

Second-quarter growth is seen supported by a narrower trade gap, mainly as a result of an earthquake-related slowdown in imports from Japan, a trend that should reverse in the July-September quarter. Trade is expected to account for the bulk of the rise in GDP growth after adding only 0.14 percentage point in the first quarter.

Given the contraction in motor vehicle output and weak demand, a slowdown in inventory investment by businesses may be a drag on second-quarter GDP. But there is no consensus on this forecast and some economists see a modest contribution from the building of stocks.

Government spending is expected to have declined again in the second quarter, even though defense expenditures probably rebounded after contracting at an 11.8 percent rate in the first three months of the year.

The expected drop in government outlays reflects continued budget cut-backs by state and local authorities.

Business spending is expected to have picked up after slowing sharply in the first quarter, driven by strong investment in gas drilling and other mining activity.

Spending on nonresidential structures is expected to have posted its second increase since the third quarter of 2008. Spending on equipment and software likely increased at the same pace as in the first quarter.

Investment in home building is expected to have declined in the second quarter, despite a spurt in groundbreaking in June. That boost is expected to be felt in third-quarter GDP.

The advance GDP report is expected to show a moderation in inflation, but a strong rise in underlying price pressures.

The personal consumption expenditures price index is expected to rise at a 3.4 percent annual rate after increasing 3.9 percent in the first quarter, a slowdown that reflects the drop in gasoline costs.

However, the core PCE price index, which excludes food and energy costs, is expected to have accelerated at a 2.3 percent rate after rising 1.6 percent in the first quarter -- overshooting the Federal Reserve's preferred level of around 2 percent.

The government will also publish revisions to GDP data going back to 2003.

(Reporting by Lucia Mutikani; Polling by Bangalore unit, Editing by Chizu Nomiyama)

Comments