'Likelihood of US slipping back into recession rises' : Reports

The US economy grew at a 1.6% annual rate in the second quarter, less than previously calculated, as companies reined in inventories and the trade deficit widened. 

The revised gain in gross domestic product was bigger than the median forecast of economists surveyed by Bloomberg News and compares with a 2.4% estimate issued last month, figures from the Commerce Department showed on Friday in Washington. Corporate profits grew last quarter at the slowest rate in a year and employee wages in the prior three months were revised lower. 

Recent figures showing slowdowns in housing, business investment and consumer spending are prompting economists to cut second-half growth forecasts. Federal Reserve chairman Ben S Bernanke told global central bankers meeting in Wyoming on Friday that while the recovery has been slow to strengthen, “preconditions” for growth in 2011 are “in place.” 

“The economy has slowed a bit and will probably continue to slow through the second half,” said John Silvia, chief economist at Wells Fargo Securities in Charlotte, North Carolina. “We’re skating on thin ice, and we don’t have a lot of margin for error.” Another report on Friday showed consumer sentiment rose less than forecast in August. 

Recession odds rise 

The Thomson Reuters/University of Michigan final index of confidence climbed to 68.9 from a July reading of 67.8 that was the weakest since November. 

The Fed “is prepared to provide additional monetary accommodation through unconventional measures if it proves necessary, especially if the outlook were to deteriorate significantly,” Bernanke said on Friday in opening remarks at the Kansa City Fed’s annual monetary symposium in Jackson Hole, Wyoming. 

Economists projected a 1.4% rate of growth in the second quarter, according to the median estimate in the Bloomberg survey in which estimates ranged from 0.5 percent to 2.2 percent. The economy grew at a 3.7% pace in the first quarter. Friday’s GDP estimate is the second for the quarter, with the final figures set for release on September 30. 

Spending Rises 

The GDP report showed consumer spending, which accounts for about 70% of the economy, rose at a 2% annual rate in the second quarter, compared with a previously reported 1.6% pace. The revision reflected revised electricity and natural gas usage data, the Commerce Department said. Purchases increased at a 1.9% rate from January through March.