U.S. Economy Shrinks

Less In 2nd Quarter

U.S. gross domestic product (GDP) fell at a 0.7% annual rate instead of the 1.0% decline it reported last month, the Commerce Department said. This was better than market expectations for a 1.2% contraction and an improvement from the first quarter, when GDP fell at a 6.4% rate.

On the manufacturing front, however, the Institute for Supply Management-Chicago said its business barometer fell to 46.1 in September from 50.0 in August, with a reading above 50 indicating expansion. Economists had expected a rise to 52.0.

A separate survey by the ADP Employer Services showed private employers cut 254,000 jobs in September, more than the 210,000 layoffs the market had been expecting. However the decline was less than the 277,000 jobs lost in August.

Consumer spending, which normally accounts for over two-thirds of U.S. economic activity, fell at a 0.9% rate in the second quarter, smaller than the previously estimated 1.0% decline. Spending rose at a 0.6% rate in the previous quarter.

Business investment fell at a 9.6% rate in the second quarter instead of 10.9%, reflecting slightly better demand for software than previously thought. It tumbled 39.2% in the first quarter.

Weak domestic demand meant businesses continued to reduce their stock of unsold goods. Inventories plunged by a record $160.2 billion in the second quarter rather than the $159.2 billion drop estimated by the government last month. Stockpiles of unsold goods fell by $113.9 billion in the first quarter.

The drop in inventories subtracted 1.42% from second-quarter GDP, the department said. Excluding inventories, GDP rose 0.7% in the second quarter compared to a 4.1% decline in the first quarter.