--US Q2 real GDP +0.7%; Q1 revised to +1.3% from +1.2%
--US Q2 capital spending at -13.6%; Q1 revised to -0.2%
--US Q2 capital spending decline largest since Q2 1982
--US Q2 final sales to domestic buyers +0.9%; Q1 revised to +3.2%
--US Q2 consumer spending at +2.1%; Q1 revised to +3.0%
--US Q2 government spending +5.5%; Q1 revised to +5.3%
--US Q2 GDP PCE price index +1.7%; Q1 at +3.2%
--US Q2 core GDP PCE price index at +1.1%; Q1 at +2.6%
--Q2 GDP price deflator at +2.3%; Q1 revised to +3.3%
--US Q2 GDP growth lowest since first quarter 1993
--US net exports subtract 1.13 point from Q2 GDP
--US net inventories to add 0.03 point to Q2 GDP

By Andrew Williams,
Washington, July 27 (BridgeNews) - U.S. gross domestic product expanded at an annual rate of just 0.7% in the second quarter of 2001, the slowest gain in over eight years. Growth was dragged down mainly by the largest drop in capital spending in 19 years, and a decline in exports. The expansion undershot the revised 1.3% growth in the prior quarter and the 1.0% projected by economists. Meanwhile, inflation decelerated along with economic growth in the quarter.
Capital spending succeeded in restraining GDP growth, plunging 13.6% in the second quarter, the largest drop since the second quarter of 1982. Spending on business equipment and software fell 14.5% in the second quarter, and business spending on buildings other than housing moving sinking 11.2%.
Consumer spending which accounts for two-thirds of output, rose 2.1% in the quarter, after a revised 3.0% acceleration in the previous three months. The gain in consumer spending was the smallest since the second quarter of 1997.
The slowdown in consumer spending comes despite gaining 0.5% in April, the largest monthly gain since January.
Final sales--gross domestic product minus inventory investment--grew at a 0.7% annual pace in the second quarter, a slowdown from the first quarter pace of 4.0%. Final sales to domestic purchasers, a measure closely watched by the Fed to gauge the strength of demand, grew 0.9%, compared with a revised 3.2% gain in the prior quarter.
Investment in housing fell 14.5%, after falling 4.1% the previous quarter.
Meanwhile, total inventories added 0.03 percentage point to growth, after subtracting a revised 2.61 points in the first quarter. While inventory adjustments appear to be moving along in some industries, most notably in the auto industry, other sectors struggle to rid themselves of unwanted stockpiles, particularly the high tech companies. Net exports of goods and services subtracted 1.13 percentage points from second-quarter GDP growth. U.S. exports declined 9.9%, the biggest decline since the fourth quarter of 1982, while imports slumped 6.7%. Because Commerce does not have a full set of data yet for first-quarter economic activity, it assumed in this report that the U.S. trade deficit widened in June, with a small increase in exports, and a larger increase in imports.
Government spending rose 5.5% in the quarter, accelerating from the revised 5.3% increase in the previous quarter, with defense spending moving up 1.9%.

BENCHMARK REVISIONS 1998-2000
The U.S. Commerce Department revised gross domestic product for 2000 down to up 4.1% from up 5.0%, according to annual benchmark revisions for GDP e covering 1998-2000 released Friday along with the preliminary report on second-quarter 2001 GDP.
Revisions to the first quarter of 2000 to up 2.3% from up 4.8% were the most dramatic for the year and coincided with Federal Reserve policy-makers aggressively ratcheting up interest rates as they aimed bring growth to a sustainable level.

INFLATION
Commerce said the GDP implicit price deflator, a widely watched inflation gauge, was reported at up 2.3% in the second quarter, slowing from the first quarter's revised 3.3% gain.
The GDP price index for personal consumption expenditures, an alternative inflation measure that is more comparable to the consumer price index and so monitored by the Federal Reserve, rose only 1.7%, the smallest gain since the first quarter of 1999. Excluding food and energy, the PCE price index rose 1.1%, compared with a 2.6% increase in the first quarter.

PERSONAL SAVINGS
The figures show that consumer savings as a percentage of disposable income increased to 1.2% in the second quarter, from 1.1% in the prior 3 months.
Total output of goods and services in the second quarter, at a seasonally adjusted annual rate, was $8.280 trillion.

WHAT WAS EXPECTED:
The BridgeNews survey of economists' estimates for GDP figure ranged from up 0.2% to up 1.5%. The final sales projections ranged from up 0.8% to up 2.9% with the consensus at up 0.8%. The PCE index was expected to gain 2.5%, while the price deflator was pegged at 2.5%.