Software Spending Rises Amid Sluggish Second Quarter

Overall, however, the U.S. economy downshifted into a lower gear in the second quarter, due to cautious consumers. Last year's recession also turned out to be deeper than previously thought, new government figures released Wednesday showed.

The new information confirmed that the economy was sinking well before the Sept. 11 terror attacks --something that some economists had suspected.

While the second-quarter figures show an economy struggling to get back to full health, many economists don't believe the recovery will fizzle out, leading to the dreaded 'double-dip' recession.

The Commerce Department reported that gross domestic product grew at a rate of just 1.1 percent in the April-June quarter, down considerably from the brisk 5 percent pace posted in the first three months of the year.

GDP measures the total value of goods and services produced within the United States and is considered the broadest measure of the economy's health.

The second-quarter performance, weaker than the 2.2 percent growth rate that many analysts had forecast, is the most sluggish growth since the third quarter of 2001.

'It was disappointing, but I don't think the economy is headed into reverse,' said Stuart Hoffman, chief economist for PNC Financial Services Group. 'But I think we'll have a half-speed recovery. Typically in the first year of a recovery, GDP can growth as much as 6 percent. With this one, I think it will be closer to 3 percent.'

Wall Street shrugged off the disappointing GDP report with a flurry of last-minute buying that pushed the Dow Jones industrials up 56.56 points to close at 8,736.59.

The economy's struggles pose a challenge for President Bush, who has stressed that the economy's fundamentals are sound and will overcome current difficulties, including a stock market slide and eroding consumer and investor confidence from a wave of accounting scandals.

'When the American people take a look at the facts and are confident about those facts as I am, they're going to realize we've got a bright future ahead of us,' Bush said Wednesday.

Senate Majority Leader Tom Daschle, D-S.D., called for better economic leadership. 'We need it from the White House, we need it from this administration,' he said.

Treasury Secretary Paul O'Neill urged Congress to complete action on key components of the president's agenda to spur economic growth, including legislation to give Bush greater authority to negotiate trade agreements and to help subsidize terrorism insurance. 'While our recovery is continuing, we are eager to quicken its pace,' O'Neill said.

The economy dominated Wednesday's Cabinet meeting. 'There was no discussion of a double-dip,' White House spokesman Ari Fleischer said. 'It was just the opposite. The sentiment of the group was that all the ingredients are there for more robust growth going into the fall and into the winter of 2002.'

The Federal Reserve, meanwhile, reported that economic activity remained sluggish in the current quarter, with the economy expanding only 'modestly' in early July. Retail sales were mixed, the Fed reported.

Given this, analysts predict the Fed will leave short-term interest rates alone at its next meeting on Aug. 13. Interest rates have been at a 40-year low all year, and most economists believe they will stay unchanged through the rest of 2002.

Annual revisions to GDP showed that the economy contracted in three straight quarters last year, rather than just one. That puts last year's recession more in line with one rough rule of thumb for a downturn _ at least two consecutive quarters of declining GDP.

GDP shrank at a 0.6 percent rate in the first quarter, at a 1.6 percent rate in the second and at a 0.3 percent rate in the third, which under earlier estimates had been the only quarter of shrinking GDP during the slump.

Weaker spending by consumers, which accounts for two-thirds of all economic activity, and bigger cuts by business in investment were the major reasons behind the first- and second-quarter reversals. Deep cuts in business investment were key in pushing the economy into recession.

Based on the revised data, the drop in economic output during the recession was 0.6 percent. That's twice as big as previously thought, but would still match the mildest recession on record, the 1969-1970 slump.

The National Bureau of Economic Research, the recognized arbiter of recessions, said the economy fell into a full-blown downturn in March 2001. It hasn't declared when it ended.

In the second quarter of 2002, consumer spending rose at a rate of 1.9 percent, down from a 3.1 percent growth rate in the first quarter. The belt tightening reflected a cut in spending on nondurable goods, such as food and clothes. Unseasonably cool weather in the spring and fallout from the weak stock market were factors, analysts said.

A pullback in spending by state and local governments also contributed to slower growth, as did the bloated U.S. trade deficit.

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