Slight GDP Dip Signals Recession Is Easing Its Grip

A new government report shows the economy sank at a pace of just 1 percent in the second quarter of the year. It was a better-than-expected showing that provided the strongest signal yet that the longest recession since World War II is finally winding down.

The dip in gross domestic product for the April-to-June period, reported by the Commerce Department on Friday, comes after the economy was in a free fall, tumbling at 6.4 percent pace in the first three months of this year. That was the sharpest downhill slide in nearly three decades. The economy has now contracted for a record four straight quarters, underscoring the grim toll of the recession on consumers and companies.

Many economists were predicting a slightly bigger 1.5 percent annualized contraction in second-quarter GDP. It's the total value of all goods and services — such as cars and clothes and makeup and machinery — produced within the United States and is the best barometer of the country's economic health.

Less drastic spending cuts by businesses, a resumption of spending by federal and local governments and an improved trade picture were key forces behind the better performance. Consumers, though, pulled back a bit. Rising unemployment, shrunken nest eggs and lower home values have weighed down their spending.

An important area where businesses ended up cutting more deeply in the spring was inventories. They slashed spending at a record pace of $141.1 billion. There was a silver lining to that, though: With inventories at rock-bottom, businesses may need to ramp up production to satisfy customer demand. That would give a boost to the economy in the current quarter.

Federal Reserve Chairman Ben Bernanke has said he thinks the recession will end later this year. And many analysts think the economy will start to grow again — perhaps at around a 1.5 percent pace — in the July-to-September quarter. That would be anemic growth by historical measures, but it would signal that the downturn has ended.

President Obama's stimulus package of tax cuts and increased government spending provided some support to second-quarter economic activity. But it will have more impact through the second half of this year and will carry a bigger punch in 2010, economists said.