BBC Bush says US recovery 'very slow' US companies are running down inventories

US President George W Bush has warned that a US economic recovery is "very slow in coming" after revised US growth figures for the second quarter showed the world's largest economy was almost at a standstill.

Markets were initially cheered by the fact that growth managed at least to stay just above zero, better than originally expected.

But US shares then slid as the general gloom about corporate prospects returned.

Annual growth was up just 0.2%, said the US Commerce Department, down from an initial estimate of 0.7% and well below the first quarter's 1.3%.

It was the weakest growth rate recorded since a 0.1% decline in the first quarter of 1993 as the US struggled to emerge from the last recession.

The cause, government economists said, was the $38.4bn (£26.5bn) sliced off business inventories in the quarter as firms coped with the slowdown.

Bush: 'Deeply worried'

The data - while better than some analysts had feared - spurred President Bush into adding some economic commentary to an otherwise routine speech to the American Legion's annual convention.

"Our economy began slowing down last year and that's bad news, and I am deeply worried about the working families all across the country," Mr Bush said.

"According to today's GDP figures, the recovery is very slow in coming."

The commerce secretary, Don Evans, was more upbeat.

"There are some good signs out there," he said, citing some forecasts which claim 3-3.5% growth is possible without sparking inflation.

"Over the next year, I certainly expect it [the US economy] to return to those kind of levels of growth."

Bad data piles up

The figures come just a day after the well-respected Conference Board survey of consumer confidence indicated US consumers were increasingly worried about unemployment.

Firms are shedding jobs at an increasing rate, consumer debt is at record levels, and figures released yesterday suggested that as many as one in 10 mortgages in the US could be in arrears.

Still, the figures could well have been much worse.

Many analysts were expecting zero growth or even a contraction.

Inventory issues

The lower estimate reflects businesses running down their excess inventories of unsold goods faster than previously estimated.

This cuts GDP but economists say excess inventories must be reduced before companies can boost production, something that would help economic growth in future.

"This is actually a good sign, because we knew we needed to get rid of some of those inventories," Brian Fabbri, of BNP Paribas in New York, told the BBC's World Business Report.

"Now that rundown is behind us, presumably manufacturers should be in better moods, and so too for retailers.

"The quarter probably does represent the weakest quarter in this year-long slowdown."

Exports fall

Another reason for the downward revision was the worsening trade deficit caused by exports falling more than previously thought.

This took one third of one percentage point off second-quarter GDP growth.

To stave off a possible downturn, the Fed has slashed interest rates seven times this year, taking a total of three percentage points off rates.

-- Anonymous, August 29, 2001