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August 1, 2009

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US economy dips at slower pace in Q2

THE United States economy shrank at a slower-than-expected pace in the second quarter, government data showed yesterday, but a sharp drop in consumer spending fanned fears that recovery would be sluggish.

Gross domestic product, which measures total goods and services output within US borders, fell at a 1-percent annual rate, the Commerce Department said, after tumbling 6.4 percent in the January-March quarter, the biggest decline since a matching fall in the first quarter of 1982.

With the drop in the second quarter, the US economy has fallen for four straight quarters for the first time since records started in 1947.

"It's still a shaky outlook for the economy, but no shakier than before. No one's world view will shift. Consumer spending is very shaky now. That's the major risk in the economy," said Pierre Ellis, senior economist at Decision Economics in New York.

Consumer spending, which accounts for more than two-thirds of US economic activity, fell at a 1.2-percent rate in the second quarter after rising 0.6 percent in the previous quarter. That sliced 0.88 percentage points from second quarter GDP, the department said.

Analysts polled by Reuters had forecast GDP falling at a 1.5-percent rate in the second quarter.

In contrast to the weak consumer reading, business investment improved in the second quarter.

The report showed business investment fell at an 8.9-percent rate in the second quarter after diving 39.2 percent in the previous quarter. Investment in nonresidential structures fell at an 8.9-percent rate from a 43.6-percent drop in the first quarter. Residential investment, which is at the core of the longest recession since the Great Depression, tumbled by 29.3 percent in the April-to-June period after plunging 38.2 percent in the first quarter.

"This report has written all over it the continued divergence between consumers and businesses," said Ashraf Laidi, chief market strategist at CMC Markets in London.


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