Economy Grows at 1.9 Percent in Q2; Q4 2007 GDP Revised to Negative Growth

The U.S. economy grew at a 1.9 percent annual rate in the second quarter of 2008, according to data released Thursday morning by the Commerce Department. Stimulus checks sent to Americans in the quarter and a large drop in imports – coupled with a surge in exports — were credited for the economic acceleration.

The growth rate, up sharply from the 0.9 percent revised GDP growth rate in the first quarter of 2008, was below most economists’ expectations of 2.3 percent growth. Still, it was the strongest economic growth in a quarter since the third quarter of 2007.

But revisions to previously-announced growth rates stole headlines. For the fourth quarter of 2007, Commerce said that the economy officially contracted at a rate of 0.2 percent, down from its initial reading of 0.6 percent growth. The negative growth rate is the first in a quarter since the third quarter of 2001. Commerce also said that it had revised the first quarter growth rate from 1 percent to 0.9 percent.

Consumer spending helped GDP growth in the second quarter of 2008 as government-issued economic stimulus checks appeared to fulfill their stated purpose. Consumer spending rose 1.5 percent in the quarter, adding 1.1 percentage points to GDP growth. Spending was buoyed by a huge jump – 11.3 percent – in real disposable incomes, almost entirely attributed to the stimulus checks.

Exports rose 9.2 percent in the second quarter due to a weak dollar, while imports fell at a 6.6 percent due to a reduced demand for oil in the U.S. in the quarter. Net exports, the difference between exports and imports, added 2.4 percentage points to GDP growth.

Government spending also added 0.7 percentage points to the economic numbers. Federal government spending increased 6.7 percent in the quarter.

Businesses drastically cut inventories in the quarter, a drag on economic growth to the tune of 1.9 percentage points. Housing was another major drag, subtracting 0.6 percentage points from growth.

Economists are worried what will happen to GDP in the third quarter once the stimulus checks are gone. “The consumer adds only 1.1 percentage point to overall growth and this is with a rebate check in hand," Robert Brusca of FAO Economics told CNN Money. "GDP was net negative on the domestic front. As we look to the second half of the year foreign growth is fading so U.S. exports are sure to slow. Also the rebate checks no longer are a factor. Meanwhile the housing sector is still a negative."