how will this affect the economy?

------------

Economic Growth Slowest In A Year

Updated 9:24 AM ET August 26, 1999By Glenn Somerville

WASHINGTON (Reuters) - Rapidly swelling imports helped trim U.S. economic growth to its slowest pace in a year during the second quarter, the Commerce Department reported Thursday, though its key driving forces remained robust.

Gross domestic product, the broadest gauge of total economic activity, expanded at a revised 1.8 percent annual rate in the spring quarter instead of 2.3 percent as reported a month ago.

That was less than half the first quarter's 4.3 percent pace of advance and was the slowest growth since a matching 1.8 percent rate in the second quarter last year.

A worsening trade performance slowed the second-quarter GDP advance but consumer spending and business investment remained strong. The revised GDP report said imports rose $13.9 billion more than thought a month ago and that inventory-building was not as strong as estimated earlier -- both influences that subtracted from second-quarter growth. The government previously reported the United States had a record $24.6-billion deficit on its June trade with the rest of the world so the downward revision to second-quarter GDP was expected.

Analysts said the key feature of the revised GDP report was even more vigorous consumer spending than previously believed.

Economist Douglas Porter of Nesbitt Burns in New York, said the apparent cooling in second-quarter GDP was likely "a real pause, rather than anything else, and I expect growth to bounce back in the second half of the year toward a 4 percent annual rate."

That was the pattern in 1998, when GDP rebounded in the final six months of the year after a moderate second-quarter advance.

Kathleen Stephansen, an economist with Donaldson, Lufkin and Jenrette Securities Corp. in New York, similarly said it was striking that demand measures in the second-quarter GDP report were revised up.

"What that tells you is that domestic final sales -- that's GDP excluding net exports -- show ... the domestic economy remains very strong," Stephansen said.

Earlier this week, the Federal Reserve announced a second round of increases in short-term interest rates in the past two months, aiming to slow growth modestly in order to keep wage and price pressures in check.

There is some evidence that higher interest rates are slowing sales of homes by making mortgages more costly but U.S. manufacturers are starting to boost production and to receive more orders.

Businesses added to inventories at a $12.1 billion annual rate in the second quarter instead of $19.4 billion estimated a month ago. That was less than a third of the $38.7-billion rate of addition to inventories made in the first quarter. Companies are forecast to pick up the pace of inventory addition in the second half in advance of year 2000.

By contrast, consumer spending that fuels two-thirds of economic growth, grew even more briskly at a 4.6 percent annual rate in the second quarter rather than 4 percent reported last month, the Commerce Department said. That was down from a 6.7 percent rate of first-quarter advance.

In addition, business investment in new plant and equipment surged at an upwardly revised 11.2 percent annual rate rather than 10.8 percent previously estimated, the department said, up from an 8.5 percent annual rate during the first quarter.

Prices remained well in check, with two key measures -- the GDP price index and the implicit price deflator -- each rising at a downwardly revised 1.5 percent annual rate rather than 1.6

-- I'm not here (I never@posted.this), August 26, 1999