GDP Growth Slowed Markedly During Q2

The nation's economic recovery appeared to be in danger of stalling out at mid-year. According to preliminary estimates coming out of the U.S. Commerce Department, Gross Domestic Product (GDP) increased at an annualized rate of just 1.1% during the second quarter of 2002. This was far weaker than the 5.0% growth (revised down from an original estimate of 6.1%) recorded during the first three months of this year, or even the modest 2.7% gain realized over the final quarter of 2001.

In hopeful anticipation of better days ahead, manufacturers, distributors, and retailers continued during Q2 2002 to build inventories from their recently depleted levels. After contributing 2.6% to Q1 2002 GDP (more than half of the quarter's 5.0% overall increase), business inventory investment accounted for all of the net gain in Q2 GDP. With inventories adding 1.2% to the most recent quarter's economic activity, the value of final sales of goods and services to consumers and businesses actually recorded a decline of 0.1%.

The specific GDP component that captures the trend in capital spending by U.S. companies (non-residential business investment) declined for the seventh consecutive quarter during Q2 this year. The good news, such as it is, is that the Q2 2002 decline in capital investment—1.6% annualized rate—was of the smallest magnitude recorded since autumn 2000.