According to a report issued earlier this week, the economy shrank at an annual rate of just 1 percent in the second quarter. Despite marking a record fourth-consecutive quarterly decline, the smaller decrease provides further evidence that the recession is slowly coming to an end. In addition, smaller decreases in consumer spending were reported during the April-June period, leading some economists to raise their expectations for the third quarter.
Nigel Gault, chief U.S. economist at IHS Global Insight, stated, “The big surprise in this report was that there was enough spending in the consumer sector and elsewhere to offset all the loss from inventory reductions.”
Gault expects that the economy will gain momentum in the current and fourth quarters as businesses switch from reducing stock to rebuilding inventories, and he expects the GDP to increase more than 3 percent in the third quarter and remain in the 3 percent-range in the fourth quarter.
Despite predicted GDP growth in the current quarter, job losses still persist. Businesses will likely continue to keep tight control over labor costs until they see more evidence of the economy stabilizing. Economists believe that the unemployment rate will inch back up to 9.5 percent for August, with 220,000 more jobs lost, down slightly from 247,000 in July.
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