GDP Revised Down; Durable Orders Tumble

A series of economic reports released on Friday appear to show that while the economy has continued to struggle so far in 2001, there are signs it may pick up later in the year.

The gross domestic product, which is the total value of all the goods and services produced in the United States, grew at an annual rate of 1.3% and not the 2.0% rate originally reported by the Commerce Department. A main reason for the revision was that companies cut back inventories at the fastest pace in 18 years.

Although the slow economic growth and reduced inventory means fewer loads to haul in the short term, Gary Thayer, chief economist at A.G. Edwards & Sons, told Bloomberg that the reduction may force factories to boost production and hire new workers in the months ahead.

This short-term slump can be seen in durable goods report, as U.S. orders fell 5% in April – the first decline in three months - due to decreases in the demand for aircraft, motor vehicles and computers. Excluding the volatile transportation sector, orders fell 3.3%.

Any drop in durable goods orders, which are manufactured goods expected to last at least three years, eventually reduces the amount of goods produced by U.S. factories for shipment by dry van and flatbed trucks.

Meanwhile, the Commerce Department said the revision in GDP was caused by updated figures on business investments and consumer spending, as well as inventories.

The ongoing effort by businesses to reduce inventories subtracted 2.96 percentage points from growth in the first three months of 2001, after a 0.6% subtraction in the fourth quarter, when the economy grew at a rate of 1.0%.

Even though inventories are being reduced, there still is no guarantee a boost in production will occur.

On Thursday night, Federal Reserve Chairman Alan Greenspan said the economy remains at risk of weakening more than anticipated, Reuters reported. However, he also believes the recent interest rate cuts should offer the economy some support by year-end.

Consumers appear to be counting on the positive effects of the rate cuts.

The University of Michigan's final May consumer sentiment index, which measures consumers' attitudes about the economy, rose to 92.0 in May from 88.4 in April, ending a slide that began late last year.

The May expectations index, a barometer of how Americans feel about the twelve months ahead, rose to 85.4 in May from 82.2 in April. The preliminary reading was 86.5.

And in another report important to trucking, sales of existing single-family homes slid 4.2% in April from the second-highest pace on record, but remains fairly strong, according to the National Association of Realtors.

Although it declined last month, it is still 4.4% above last year’s level, which means companies who haul household items such as furniture are likely seeing an increase in business this year.