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GDP for 2Q revised lower
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September 30, 1999: 10:30 a.m. ET
Output rises at 1.6% yearly pace, slowest in 4 years; inventory gains slow
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NEW YORK (CNNfn) - The nation's economic output rose at the slowest rate in four years in the second quarter, the government said Thursday, in a new sign the Federal Reserve may be able to hold the line on interest rates next week.
Gross domestic product rose at an annual rate of 1.6 percent in the quarter, the Commerce Department reported in its second and final revision of GDP. That was lower than the 1.8 percent growth rate first reported; economists had expected that rate to hold.
That was the slowest rate of growth since the second quarter of 1995, when the economy grew a slim 0.4 percent. The second-quarter 1999 figure was less than half the potent 4.3 percent rate tallied in the first quarter this year.
The big build-up of inventories in the first quarter meant factories didn't need to refill them as fast in the second quarter. Businesses boosted inventories at a $7.4 billion rate in the second quarter, less than the expected $12.1 billion and far below the $38.7 billion reported in the first quarter.
The lower business inventories subtracted 1.4 percentage points from second-quarter GDP, the Commerce Department said.
Meanwhile, the implicit price deflator, a key indicator of inflation in the economy, was revised down to an annual rate of 1.3 percent. Economists expected the figure to remain at a 1.5 percent gain.
The Fed's policy-making panel certainly will consider the lower numbers when it meets next Tuesday to determine whether to change short-term interest rates. Most economists expect the panel to hold the line on interest rates.
The bond market, a traditional foe of inflation, reacted positively to the GDP report, but its gain was modest. The 30-year Treasury issue rose 8/32 in price for a yield of 6.10 percent, down from 6.12 percent Wednesday.
One analyst said exceptionally weak inventory growth was striking in the face of hearty consumer demand recently. That, said Miller Tabak bond expert Anthony Crescenzi, means that inventory levels will have to catch up eventually, forcing factories to boost activity.
"With inventories low with demand high, they [the Fed] know that there may be more ahead in terms of economic strength," said Crescenzi. The figures indicated the slowest rate of inventory growth since the second quarter of 1992, he added.
Crescenzi used the example of the top U.S. automakers, which are on track for a record sales year. "GM, Ford and Chrysler: How would they be able to meet demand without raising inventories?" he said.
An upward-revised rise of imports showed that American consumers are buying more products made overseas, to the detriment of U.S. factories and thus GDP. But consumers' appetite was strong again. Consumer spending rose 4.8 percent in the second quarter after an increase of 6.7 percent in the first quarter.
Imports rose 15.1 percent in the second quarter, after the first quarter's 13.5 percent gain. Exports rose 4.9 percent after a decline of 5.1 percent during the first quarter. Government spending fell 3.6 percent, after falling 1.6 percent in the first quarter. 
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Commerce Department
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