Exports Spur GDP Growth In Second Quarter

The Commerce Department has revised second-quarter growth in gross domestic product to 3.3 percent, up from the previous estimate of 1.9 percent. The rate of increase is the fastest in nearly a year. Higher exports were credited for the increase.

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MELISSA BLOCK, Host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.

ROBERT SIEGEL, Host:

And I'm Robert Siegel. Among all the bad economic news, we begin this hour with some movement in the positive direction. It turns out that during the spring of this year, the U.S. economy was growing much faster than anyone thought.

A report out today on the gross domestic product suggests there's a disconnect between what people are experiencing - the job losses, the foreclosures - and what one of the government's most important statistics is indicating. Here's NPR's John Ydstie.

JOHN YDSTIE: Today's GDP report said the U.S. economy had raced ahead during April, May and June, growing at an annual rate of 3.3 percent. That's a very robust pace, says economist Nigel Gault of the consulting firm Global Insight.

NIGEL GAULT: That's quite a surprising outcome, given all the bad news we've been having over the economy.

YDSTIE: Right, like record home foreclosures, rising unemployment, a credit crisis, billions in losses at financial and auto companies, and your 401K leaking money like a rusty bucket. So what gives?

How can the GDP number be so disconnected from what many Americans are feeling? The answer, says Gault, is that we may be producing more, but we're shipping much of it overseas.

GAULT: We may be producing more output, but we're not actually able to use it for our own benefit, for our own consumption.

YDSTIE: Of course, Americans have built a lifestyle importing mountains of goods and services and consuming much more than we produce. So it's no wonder we've got the blues now that that's unwinding. Kent Jubick(ph), president of Ajax & Sons, a company that produces small metal parts like hinges and brackets in Fridley, Minnesota, some of them for export, he says there's a good deal of gloom in the community, people talking about the housing slowdown and foreclosures.

KENT JUBICK: I could go on and on and on about the doomsday, but we seem to do very well in the last six months in a slow economy.

YDSTIE: In fact, the company's exports to China have doubled in the past two years, and the surge in exports apparent in today's GDP report comes as no surprise to Dyke Messinger, who runs a factory in Salisbury, North Carolina.

DYKE MESSINGER: We've seen a nice growth in our exports this year on top of good growth last year, and it's coming from all over the world.

YDSTIE: Messenger is president of Power Curbers, Incorporated, which produces machines that make concrete curbs and gutters for streets onsite like a paving machine. He says sales are strong in South America, Europe, Asia, North Africa and the Middle East. But despite 20 percent increases in exports in the past two years, his profits are down because U.S. sales are suffering.

MESSINGER: When you're down 30 percent domestically, that 20 percent increase in international still doesn't bring you back to the level that you need to be.

YDSTIE: Unfortunately for manufacturers and the U.S. economy, says Nigel Gault, the export surge may not continue.

GAULT: Certainly going to continue to see support from exports, but it's hard to believe we're going to see as much support as we did in the second quarter, when export growth was 13 percent.

YDSTIE: That's because foreign economies are beginning to slow, especially in Europe, and the weak dollar, which has made U.S. goods much more competitive, appears to have bottomed out, and in fact has strengthened in recent weeks. John Ydstie, NPR News, Washington.

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Economic Growth Spurs Concerns Over Inflation

Higher than expected economic growth also means heightened concern about inflation. And inflation was a pretty big worry even before the Commerce Department's announcement Thursday that second-quarter gross domestic product increased at the surprisingly robust annual rate of 3.3 percent.

Consumer prices were up more than 5 percent in July compared to a year before; that's the biggest jump in nearly 20 years. Wholesale prices are rising even faster, and that's not a good thing.

President Ronald Reagan once called inflation "as violent as a mugger, as frightening as an armed robber and as deadly as a hit man." That may be a bit dramatic, but inflation can cause a lot of pain for working families, as prices rise faster than wages can keep up. Banks also respond by raising interest rates, which makes home loans and all other forms of credit more expensive.

A lot of countries in the developing world recently have seen tremendous economic growth. That created strong demand for things like steel and oil, and pushed up prices. For a while, U.S. companies tried to make up the difference by becoming more productive and efficient. But more firms are now trying to pass the higher costs along to customers. Part of that has to do with the weak dollar, because it raises the prices of goods from foreign competitors. That gives U.S. companies some room to raise prices.

Economists are split over what all this means. Some think the economy and the American consumer are facing enough head winds to keep inflation in check. With more people losing their jobs, working fewer hours or less overtime, they have less money in their pockets to spend.

The downturn in the housing market also hurts consumers' willingness to spend. Add to that the fact that energy prices are falling again, and some economists say inflation must subside. That seems to be the attitude at the Federal Reserve as well: It hasn't yet begun raising interest rates to fight inflation.

But other economists disagree. They think the strong GDP numbers show that the economy really hasn't slowed down enough yet to curb inflation. Dean Maki, chief U.S. economist at Barclays Capital, says "the overall inflation picture remains quite worrisome" and is now at a "tipping point." He notes that 20 percent of small businesses now cite inflation as their No. 1 concern. That hasn't happened since the early 1980s.

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