By Timothy R. Homan – Jul 30, 2010 6:41 AM PST Fri Jul 30 13:41:41 UTC 2010

July 30 (Bloomberg) —

Growth in the U.S. slowed to a 2.4 percent annual rate in the second quarter, less than forecast, reflecting a larger trade deficit and an easing in consumer spending.

The increase in gross domestic product compared with a median forecast of 2.6 percent of economists surveyed by Bloomberg News and follows an upwardly revised 3.7 percent pace in the first quarter that showed a jump in inventories, according to figures from the Commerce Department today in Washington. Business investment climbed at the fastest rate since 1997.

“The economy is muddling through,” Ethan Harris, head of North America economics at Bank of America-Merrill Lynch Global Research in New York, said in an interview after the report. “We’re probably not going to see a really strong number for a while. We need to see some pickup in job growth.”

A slower pace of growth means employers may be reluctant to hire workers and more likely to keep a lid on prices in order to boost sales. Federal Reserve Chairman Ben S. Bernanke last week said the central bank is prepared to take further policy actions if the world’s largest economy “doesn’t continue to improve.”

The Standard & Poor’s 500 Index dropped 1.1 percent to 1,089.97 at the 9:36 a.m. in New York. The yield on the 10-year Treasury note fell 6 basis points, or 0.06, to 2.92 percent.

Median Forecast

The projected gain in GDP was based on the median estimate of 81 economists surveyed. Forecasts ranged from gains of 1 percent to 4 percent.

The worst U.S. recession since the 1930s was even deeper than previously estimated, reflecting bigger slumps in consumer spending and housing, according to the Commerce Department’s annual revisions also issued today.

The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the 3.7 percent drop previously on the books, the report showed. Household spending fell 1.2 percent in 2009, twice as much as previously projected and the biggest decline since 1942.

Consumer spending, which accounts for about 70 percent of the economy, rose at a 1.6 percent pace last quarter, compared with a 1.9 percent rate the previous three months that was smaller than previously estimated, today’s report showed. Job gains have been slow to take hold, curbing household purchases.

Lost Jobs

The economy lost 8.4 million jobs during the recession that began in December 2007, the biggest employment slump in the post-World War II era. So far this year, company payrolls grew by 593,000 workers, according to Labor Department figures earlier this month.

More than 7 out of 10 Americans say the economy is still mired in recession, and the country is conflicted over how to balance concerns over joblessness and the federal budget deficit, according to a Bloomberg National Poll.

Just like the experts, Americans are torn about whether the federal government should focus on curbing spending or creating jobs, the poll conducted July 9-12 shows. Seven of 10 Americans say reducing unemployment is the priority. At the same time, the public is skeptical of the President Barack Obama’s stimulus program and wary of more spending, with more than half saying the deficit is “dangerously out of control.”

Government Stimulus

Obama is trying to garner support for his plan to provide $12 billion in tax breaks, ease terms for loans guaranteed by the Small Business Administration and create a $30 billion fund to help community banks offer loans to small businesses.

The trade gap in the second quarter widened to $425.9 billion from $338.4 billion, subtracting 2.8 percentage points from growth, the biggest reduction since 1982, today’s report showed. Imports grew at a 29 percent pace, while exports climbed 10 percent.

Manufacturers in the U.S. are reaping the benefits of the global recovery. Caterpillar Inc., the world’s largest maker of construction equipment, last week raised its full-year earnings forecast on higher demand in developing countries for mining, energy and rail equipment.

“You’ve got strong growth in India and China that provides demand for commodities,” Chief Financial Officer Ed Rapp said in an interview July 22. “Most of the mining is happening in the developing parts of the world.”

Manufacturing Shares

Manufacturers are benefiting as companies here and abroad update equipment and add to inventories. The S&P Supercomposite Machinery Index, which includes companies such as Caterpillar Inc. and Deere & Co., is up 13.5 percent so far this year through yesterday. The broader S&P 500 Index is down 1.2 percent.

Gains in business investment are also supporting growth. Corporate spending on equipment and software jumped at a 22 percent annual rate, the biggest increase since 1997.

Amazon.com Inc., the world’s largest online retailer, forecast third-quarter profit that missed analysts’ estimates after it cut prices on the Kindle, its best-selling product, and propelled capital spending to a record.

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