The Commerce Department reported that U.S. economic growth slowed sharply to a 1.4 percent annual rate in the second quarter. Strong consumer and business spending kept the economy growing, while the combination of the General Motors strike and the Asian crisis reduced economic growth from the 5.5 percent annual rate reported for the first quarter. For those economists and policy makers who had been worried that the economy was overheating, the slowdown was good news. Janet L. Yellen, a White House economist, predicted that growth for the entire year is likely to be at least 3 percent. Federal Reserve officials had been hoping for even slower growth because of fears that the nation's low 4.5 percent unemployment rate might stimulate inflation.
Inflation still appears to be in check.
The Commerce Department reported that prices rose at a 0.4 percent annual rate in the second quarter following a 0.2 percent decline in the first quarter. The Commerce Department also reported a sharp decline in personal savings. The dramatic decline in personal savings is not as bad as it sounds. Capital gains and capital gain distributions, for example, are not considered in the calculation of the savings rate. The dramatic increase in the stock market has created a substantial amount of new wealth which consumers are apparently spending.