- The Washington Times - Thursday, July 31, 2008

Economic growth picked up to 1.9 percent in the spring quarter, aided by a boom in exports and a small boost to consumer spending from tax rebates, the Commerce Department reported this morning.

But growth was revised down for the previous three years, and the latest figures show that the economy contracted by 0.2 percent in the final three months of 2007 — keeping the debate alive about whether the economy is in recession.

Without a robust 9.2 percent jump in exports and 6.6 drop in imports in the last quarter, the economy also would have contracted by 0.5 percent, the department said.

Consumer spending normally constitutes about 70 percent of U.S. growth, but American consumers have been displaced in recent months by exports, which are fed by strong consumer demand in the rest of the world.

Many economists expect growth to sink again in the second half of the year as the tax stimulus ends and consumers succomb to worries about high gas prices and falling home prices.

“For the next two or three months, the tax rebates are likely to support consumer spending,” said Harm Bandholz, economist at Unicredit Markets. “But once the impact of the fiscal stimulus fizzles out, the underlying problems of U.S. households will resurface; rising unemployment, falling house prices and high debt burdens…We expect consumer spending to rise a mere 0.5 percent in the second half of the year.”

In the last quarter, rebate checks lifted U.S. consumer spending to a 1.5 percent growth pace from 0.9 percent in the first quarter, which had been the smallest gain in 13 years.

Inflation flared to a 4.2 percent rate from 3.6 percent in the first quarter, driven by record increases in oil and gasoline prices. Excluding energy, however, inflation remained tame at 2.2 percent, the department said.



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