- The Washington Times - Saturday, July 29, 2006

U.S. economic growth slowed significantly during the second quarter, as gross domestic product increased at an annual rate of 2.5 percent, less than half the torrid 5.6 percent pace in the first quarter. At the same time, the price index for gross domestic purchases, which measures prices paid by U.S. residents, increased at an annual rate of 4 percent. That represented a significant acceleration from the 2.7 percent rate for the first quarter.

Compounding the current slowdown in growth and increase in inflation, the Commerce Department also revised downward the annual economic growth rates for each of the previous three years. Some of the biggest downward revisions for the 2003-2005 period involved the crucial business-investment sector, which increased at a relatively paltry rate of 2.7 percent during the second quarter of this year. Business spending on equipment and software actually declined during the second quarter compared to the first. Consumer spending also slowed during the April-June period, advancing at an annual rate of 2.5 percent.

After rising at an average rate of 9 percent for the 2003-2005 period, residential investment declined by an annual rate of 6.3 percent during the second quarter. Export growth slowed precipitously last quarter, falling from an annual average of nearly 12 percent during the two previous quarters to 3.3 percent in the second. Meanwhile, personal saving was negative for the fifth consecutive quarter; and the second quarter’s personal saving rate, measured as a percentage of disposable personal income, declined to negative 1.5 percent, its lowest level since 1933.

Average annual economic growth during the previous three years was reduced from 3.7 percent to 3.4 percent. The Commerce Department report ratcheted downward growth during 2003 from 4 percent to 3.7 percent; during 2004 from 3.8 percent to 3.4 percent; and during 2005 from 3.2 percent to 3.1 percent. The average annual growth rate during these three years for business investment, which is technically called “nonresidential fixed investment,” was slashed from 7.8 percent to 5.8 percent. During 2004 and 2005 alone, the annualized growth rate for business investment was revised from 8.9 percent to 6.2 percent. These downward revisions in business investment were so significant that in 2005, the fourth year of the economic expansion, business investment remained below investment levels in 2000, the year before the last recession.

With the latest GDP report from the Commerce Department revealing that economy-wide inflation has accelerated, economic growth has slowed and the economic expansion during the last three years hasn’t been as robust as previously reported, the Republican Party’s challenge to maintain its congressional majorities has just gotten more difficult.

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