WRAPUP 1-US growth seen revised down on imports, inventories

* Second-quarter growth seen revised down to 1.4 pct pace

* Trade deficit likely wider than previously thought

* Smaller contribution from business inventories expected

By Lucia Mutikani

WASHINGTON, Aug 27 (BestGrowthStock) – U.S. economic growth likely
was much weaker than initially thought between April and June,
hurt by surging imports and as rebuilding of business
inventories softened, a government report is expected to show
on Friday.

Gross domestic product now is estimated to have grown at a
1.4 percent annual rate during the second quarter, rather than
the 2.4 percent estimated in the government’s first reading
last month, according to a Reuters survey.

The Commerce Department is due to release its second
estimate of GDP at 8:30 a.m. (1230 GMT). GDP, which measures
total goods and services output within U.S. borders, grew at a
a much more robust 3.7 percent rate in the first quarter.

The GDP data follows a series of disappointing reports on
the housing sales this week and will add pressure on the Obama
administration, which already is worried about a slowing
economy ahead of November congressional elections.

A White House official said on Thursday that a vacationing
President Barack Obama was watching the economic data closely
and may address it publicly.

“You can expect you will see the president talking about it
soon,” White House spokesman Bill Burton said. “I don’t have a
specific date for it, though.”

Imports of goods and services in June grew to their highest
level since October 2008, leaving a much wider trade deficit
than the government had assumed in its advance estimates last
month for second-quarter growth .

Economists are at a loss to explain the jump in imports,
which occurred at a time when domestic demand is very anemic.
Import growth is usually associated with strength in underlying
domestic demand.

“The jump in imports is out of proportion with the growth
in domestic demand. It’s a fairly weak recovery but we get the
biggest drag from external trade, it just doesn’t make sense,”
said Paul Ashworth, a senior U.S. economist at Capital
Economics in Toronto.

The government previously estimated the trade gap had
sliced 2.8 percentage points from GDP in the second quarter,
but economists reckon the revisions on Friday could show a drag
of as much as 3.5 percentage points.

The slackening economic recovery is a nightmare for the
Obama administration and the Democratic Party two months away
from crucial mid-term elections that could shift the balance of
power in Congress in favor of Republicans.

A Reuters/Ipsos poll this week found Obama’s approval
rating at 45 percent, overtaken for the first time by a 52
percent disapproval rating.

The recovery from the worst economic downturn since the
Great Depression had been largely fueled by a $862 billion
government stimulus package and businesses rebuilding
inventories from record low levels.

The government is expected to report the contribution to
growth from inventories in the second quarter was much smaller
than the 1.05 percentage points it estimated last month.

Growth excluding inventories is expected to have increased
at a 0.9 percent rate, instead of 1.3 percent.

Still, many economists remain unconvinced the economy is
close to tipping back into recession.

“There is no doubt we are losing momentum in the economic
recovery,” said Robert Dye, senior economist at PNC Financial
Services in Pittsburgh. “But if we define recession as two or
more consecutive declining quarters of GDP, I think we are not
going to go there.

“We are going to see a pattern where we may have declining
GDP in one quarter followed by smaller gains in the next
quarter, bouncing along the bottom as it were,” Dye said.

Business spending is expected to be revised up, although
investment in structures could be pared back. While businesses
have been reluctant to hire new workers, they have been using
their cash piles to splurge on equipment and software.

The GDP report is expected to show corporate profits rose
4.2 percent in the second quarter after increasing 5.8 percent
in the first three months of the year.

“Productivity slowed last quarter as stretched work forces
led to the biggest increase in hours worked in more than four
years,” said Ryan Sweet, a senior economist at Moody’s
Economy.com in West Chester, Pennsylvania.

“This should put a little pressure on margins, which have
expanded strikingly, and cause profit growth to slow
considerably after a three-quarter stretch in which growth
averaged close to 10 percent.”

Consumer spending growth, which has been dampened by high
unemployment, was likely to be left unchanged at the 1.6
percent rate reported last month, economists said.
(Editing by Leslie Adler)

WRAPUP 1-US growth seen revised down on imports, inventories