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Thursday, September 30, 1999 Published at 17:46 GMT 18:46 UK


Business: The Economy

US growth slows further

US companies are producing less .. for now

The US economy is showing more signs of slowing down, easing pressure to make further cuts to interest rates.

The US central bank, the Federal Reserve, meets next Tuesday to consider whether to raise rates for the third time since the summer.

The government said the rate of economic growth in the second quarter of 1999 has been revised downwards to 1.6% annually, compared to a rate of 1.8% previously thought.

It was the smallest gain in four years, and far slower than the growth of 4.3% in the first three months of the year.

The main reason for the revision was the effect of the growing US trade deficit, which reduced growth by 1.36%. Goods which were imported rather than produced in the United States do not add to GDP.

Falling profits

Profits for US companies also fell by $9bn in the second quarter, compared to an annual gain of $47bn in the first three months. As well as competition from abroad, companies face pressure for wage increases as unemployment hits record lows.

But inflation was subdued, with GDP deflator - the broadest measure of price increases - rising by only 1.9%, less than the 2.1% previously thought.

Most analysts do not expect the Fed to raise interest rates in October, but they do expect growth to pick up - perhaps to around 4% - in the July-September quarter.

Strong consumer demand is still fuelling growth. At some point, the US economy will have to cool further. But as the International Monetary Fund recently pointed out, there is still a choice as to whether that will be a hard or a soft landing.



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