Transcripts

The Stimulus Checks Stimulated the 2nd Quarter

SUSIE GHARIB: Wall Street's two-day winning streak ended today on news that the U.S. economy grew slower than expected in the second quarter. The Commerce Department reported gross domestic product or GDP expanded at a rate of only 1.9 percent. And the government lowered the GDP reading for the fourth quarter of last year, saying the economy shrank by 0.2 of a percent, the first contraction since the 2001 recession. That look back signaled that the economy might be in worse shape than previously thought. Scott Gurvey reports.

SCOTT GURVEY, NIGHTLY BUSINESS REPORT CORRESPONDENT: The performance of the American economy in the second quarter was about as expected, driven in good part by consumers spending their economic stimulus checks. Exports were also up and imports down, a function of the weak dollar. Economist David Wyss of Standard & Poor's expects to see similar trends for the third quarter.

DAVID WYSS, CHIEF ECONOMIST, STANDARD AND POOR'S: Consumer spending was actually a little bit lower than we thought it was going to be, but business investment was stronger. Inventories were a little bit lower. Exports were quite a bit stronger. All of that means, if anything, we've got a little more momentum in this economy than we thought we did and that's good news for the third quarter, as well.

GURVEY: But the negative factors remain. Energy prices, while well off their peaks, are still much higher than a year ago. Inflation, mainly a result of those energy prices, is being felt throughout the economy. The GDP's key inflation index stands at 4.2 percent, well above the Fed's comfort zone. And economist Jim O'Sullivan of UBS notes the credit crunch and housing crisis are far from over.

JAMES O'SULLIVAN, SR. U.S. ECONOMIST, UBS: Certainly, when you look at the housing sector, which is the root cause of the weakness in the economy, there's no sign yet of a turnaround. Home prices are still falling and, of course, the stock market is near its low, as well. So I think, in general, the risks over the next couple quarters are tilted to the downside.

GURVEY: While there are mixed forecasts for the third quarter, most economists see weakness in the fourth. A revision of last year's data released today shows an actual contraction for the fourth quarter of 2007 and David Wyss sees a negative fourth quarter this year, as well.

WYSS: Even though they aren't consecutive, that's probably enough to qualify this as a recession and I think when it's all done, which probably won't be until next spring, we'll say this was a long but mild recession. And sort of a lazy "W" pattern, appropriately enough, to end the president's term, because the rebate checks gave you a little kick in the middle.

GURVEY: The committee of economists which officially determines recessions defines them as a significant decrease in activity over a sustained period of time. It usually declares a recession six to 18 months after it begins. Scott Gurvey, NIGHTLY BUSINESS REPORT, New York.