Friday, July 31, 2009

Stocks Erratic After GDP

July 31 (Bloomberg) -- The U.S. economy shrank at a better- than-forecast 1 percent annual pace in the second quarter as a jump in government spending masked a deeper retrenchment by consumers.

The drop in gross domestic product followed a 6.4 percent contraction in the prior three months, the worst in 27 years, Commerce Department figures showed today in Washington. Revisions showed the economic downturn last year was even deeper than previously estimated.

While today’s figures signal that what has now become the worst recession since the Great Depression is approaching an end, the erosion in consumer spending -- which makes up about 70 percent of the economy -- and rising unemployment suggests a muted rebound, analysts said. Stocks headed lower and Treasuries higher after the report.

“We’re heading to a sluggish recovery,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “We’ll get more support from government programs in the second half, but if you want a strong recovery you need a strong consumer, and we are not seeing that.”