Dropping Inventories Crimp Growth in the U.S. During Second Quarter

Economic growth in the U.S. was more tepid this past quarter than was thought initially as businesses ran down in an aggressive manner their inventories, which offset a small surge in consumer spending.

Gross domestic product grew by an annualized rate of 1.1%, said the U.S. Commerce Department on Friday in its GDP estimate.

That was down modestly from the growth of 1.2% posted in July and reflected more imports that were estimated previously as well as weaker spending by the government.

The economy made a solid start to the 2016 third quarter with a narrowing of the trade deficit and the rise in residential constructions increasing during July.

Demand for capital goods that are manufactured surged during July, indicating that the prolonged downtrend for business spending was abating.

While U.S. retail sales remained weak during July, a strong labor market will likely continue supporting spending by consumers. Growth is expected as well to receive a boost from companies restocking inventories after liquidating them during the most recently ended quarter.

The Federal Reserve in Atlanta is forecasting at this time a GDP increase during the third quarter at a rate of 3.4%.

The economy grew at a pace of 0.8% during the first quarter and 1% during the first six months of 2016.

On Friday, Janet Yellen the Chairwoman of the Federal Reserve expressed an upbeat note when she spoke with global central bankers in Wyoming.

Yellen said her belief was that the case for increasing interest rates was strengthened recently by strong performance of the U.S. labor market and the outlook for inflation and economic activity.

The central bank of the U.S. increased interest rates during the end of 2015 for just the first time in close to 10 years, but has kept them steady amidst the worries over a persistently low rate of inflation.

The majority of economists belief there will be another hike in interest rates this December.

Stocks in the U.S. were down on Friday, while the dollar increased against a host of different currencies.

The government reported that corporate profits after taxes were down 2.4% during the just ended quarter on June 30, after increasing by 8% during the first three months of 2016.

The government reported as well that corporate profits after taxes were down 2.4% last quarter after showing an increase of 8% during the first three months of 2015.

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