GDP Revised Sharply Downward in Q2; Consumer Sentiment a Bit Higher

A revised estimate of second-quarter GDP on Friday, August 27, showed that the economy grew at 1.6% annual pace, down sharply from the government’s first estimate of 2.4%. Added to this week’s glum reports on home sales, and the economy appeared to be stalling out.

The revision was slightly better than the 1.4% figure that economists polled by Bloomberg had been expecting. The Commerce Department reported that a surge in imports and slackening of companies restocking goods fueled the downward revision.

Ethan Harris, an economist at Bank of America-Merrill Lynch, speaking to The Associated Press, said, “We seem to be in the early stages of what might be called a ‘growth recession.’ ” Harris, and other economists, believes the economy will limp along in the second half, with the unemployment rate likely moving a bit above 9.5%.

Federal Reserve Chairman Ben Bernanke said Friday at the annual Federal Reserve conference in Jackson Hole, Wyoming, that the Fed stood ready to support the economy by buying more longer-term securities. Bernanke said the economy should continue to grow throughout 2011, though at a “relatively modest pace.”