Economy turning around soon? Not likely

Employers have cut jobs every month this year and wage growth is trailing inflation. That combination raises concerns about the future of consumer spending, one of the pillars underpinning the economy.

The biggest factor in the GDP's second-quarter rebound was robust sales of U.S. exports. The weaker value of the U.S. dollar has bolstered those sales, which accounted for half of the gain in GDP. Exports grew at a 13.2 percent pace in the spring, more than double the 5.1 percent growth rate logged in the first quarter.

Imports, meanwhile, fell at a 7.6 percent annualized pace in the spring, as economic troubles in the U.S. crimped demand for foreign-made goods. The improved trade picture added 3.1 percentage points to second-quarter GDP, the most since 1980.

Against that backdrop, Japan's Toyota Motor Corp. on Thursday lowered its global sales target for next year, proof that even one of the world's most durable automakers is being hurt by a slowing U.S. market.

"With the rest of the world now slowing and the dollar off its lows, the U.S. will be more reliant on domestic demand in coming quarters," said Nigel Gault, an economist at Global Insight. "Since consumer spending is slowing down and the credit crunch is tightening its grip, it is hard to foresee another quarter with such a robust GDP headline for some time."

U.S. consumers did boost their spending at a 1.7 percent pace in the second quarter, the best showing in nearly a year. Government stimulus checks of up to $600 a person helped energize shoppers. But many expect consumers to pull back in the months ahead as unemployment rises, paychecks shrink and their biggest asset — their homes — continue to sink in value.

The effects of the housing market's collapse were evident in the GDP report.

Builders cut back at an annual rate of 15.7 percent in the second quarter_ although that was a better showing than early this year and late last year.

Businesses trimmed spending on equipment and software in the spring. And, they reduced investment in inventories, but not as much as initially estimated by the government. That also contributed to the improved GDP reading.

One measure of corporate profits showed companies losing ground in the second quarter. After-tax profits fell 3.8 percent in the spring, compared with a 1.1 percent increase in the first quarter.

With the economy still coping with fallout from housing and credit problems, the Fed is expected to hold interest rates steady at its next meeting on Sept. 16, and probably through the rest of this year.

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