Growth recovers but jobless claims up

 @ibtimes on August 30 2007 10:32 AM

The U.S. economy grew at an annual rate of 4 percent in the second quarter, as strong business investment led the fastest pace of expansion since early last year, the government reported on Thursday.

The Commerce Department raised its estimate of gross domestic product -- the measure of total goods and services output within U.S. borders -- from a 3.4 percent gain that it published a month ago. That was in line with Wall Street economists' forecasts and far outstripped the first quarter's anemic 0.6 percent rate of expansion.

However, the rebound in growth is not likely to be sustained. Since the April-June quarter, a credit squeeze stemming from rising defaults for subprime mortgages has disrupted financial markets worldwide and led policy-makers and analysts to scale back estimates for U.S. economic growth in coming quarters.

Indeed, other government data showed that jobless claims unexpectedly rose last week, with the number of unemployed people still on the benefit rolls after drawing an initial week of aid the highest since mid-April.

We need to see more data, but there must now be a real suspicion that companies have started to recognize that maintaining earnings growth in the current environment will be difficult with their current staffing levels, economists at High Frequency Economics wrote in a note to clients.

The government's core personal consumption expenditure price index, a measure of inflation that strips out volatile energy and food prices, rose at a 1.3 percent annual rate in the second quarter, compared to a rise of 1.4 percent in the prior three months.

The main sources of the upward revision in second-quarter economic growth were healthier business investment and a better trade performance than the department estimated a month ago.

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