Growth clocked in at a solid 3.4 percent in the spring quarter, a sign that record-high energy prices did little to impair the economy, the Commerce Department reported yesterday.
Record spending on housing, steady spending by consumers and businesses and a big drop in the trade deficit all contributed to the pace of expansion, which was somewhat slower than the first quarter’s 3.8 percent annual rate.
But while sales of autos were strong, they served primarily to empty full lots at dealerships, contributing to a massive drawdown in inventories that subtracted substantially from growth during the quarter, the department said.
Without the liquidation of inventory, growth would have been close to 6 percent. With less inventory to sell off this quarter, some economists say growth could hit an unexpectedly robust 5 percent.
“The economy’s resilience has come as a surprise even to optimists like me,” said Richard Berner, chief U.S. economist at Morgan Stanley.
“To be sure, the jury is still out on energy prices,” he said, “but notwithstanding those and other headwinds, I think growth in the second half will surprise to the upside.”
Both oil and gasoline prices reached records during the second quarter and show little sign of receding. Yesterday, the price of premium crude on the New York Mercantile Exchange jumped back over $60 a barrel to $60.57 — only $1.53 below its record high.
Still, the deceleration in consumer spending in the face of such prices “was both shallow and short-lived,” as was a slowdown in business spending on equipment after the expiration of last year’s investment tax breaks, Mr. Berner said.
“The economy’s income-generating capacity has improved, providing wherewithal for consumers restrained by higher gasoline prices,” he said.
The unexpectedly robust demand during the spring means that businesses and importers may have slashed production, deliveries and inventories more than they needed to, and will find themselves scrambling to catch up for the rest of the year, pushing up the growth rate, he said.
The economy during the second quarter experienced the “best of all worlds” because growth was solid while inflation was subdued, said John Silvia, chief economist at Wachovia Securities.
A price index accompanying the growth report rose a modest 2 percent, excluding soaring oil and gas prices, after jumping 3 percent in the first quarter.
Imports posted a rare decline of 2 percent, when adjusted for inflation, as record-high gas prices prompted Americans to buy less oil during the quarter. Meanwhile, exports surged by 13 percent — double the first-quarter rate.
As a result, the trade deficit dropped $44 billion — the largest quarterly drop in more than 50 years — with the boost to growth accounting for nearly half of the quarterly growth rate, said David Guether, chief economist at the National Association of Manufacturers.
“Though the trade deficit remains a challenge, it is clear the realigning dollar is starting to have a positive impact on U.S. manufacturers and the economy as a whole,” he said.
The turnaround in trade may be cause to celebrate after years of rapidly increasing deficits, but Mr. Silvia said he does not expect such dramatic improvement in the future, which would be “out of line” with recent experience.
He also expects consumer spending on houses and other purchases to slack off later this year as interest rates and inflation rise.
Christian E. Weller, senior economist at the Center for American Progress, said the strong consumer performance during the spring was possible only because consumers spent nearly every penny they earned, driving down the saving rate to a record low of 0.2 percent.
While growth was surprisingly healthy in the second quarter, revisions published by the department yesterday showed that the economy grew more slowly than previously thought in the recovery from the 2001 recession.
From the trough of the recession in summer 2001 to the beginning of this year, growth averaged 3.1 percent instead of the previously reported 3.4 percent, the department said.