Finance & Business World

The U.S. economy probably contracted at a faster pace in the second quarter than previously estimated as companies made even bigger cuts in inventories, economists said before a government report today.

Gross domestic product shrank at a 1.5 percent annual rate from April to June compared with the 1 percent drop reported last month, according to the median forecast of 75 economists surveyed by Bloomberg News. Another report may show claims for unemployment benefits fell for the first time in three weeks.

Companies from Wal-Mart Stores Inc. to Macy’s Inc. cut costs and stockpiles to bolster profits as job losses caused consumers to curb spending. Leaner stocks and government programs to revive demand, including “cash-for-clunkers” and first-time homebuyer credits, are boosting manufacturing and housing, helping the economy emerge from the recession.

“The inventory adjustment is further along than thought, setting the stage for increased production in coming months,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

The Commerce Department’s GDP report is due at 8:30 a.m. in Washington. Survey estimates ranged from declines of 1.8 percent to 0.8 percent. The world’s largest economy shrank at a 6.4 percent pace in the first three months of the year.

A drop would be the fourth in a row, the longest contraction since quarterly records began in 1947. The world’s largest economy has shrunk 3.9 percent since last year’s second quarter, making this the deepest recession since the 1930s.

Fewer Claims

A report from the Labor Department may show applications for first-time jobless benefits last week fell to 565,000 from 576,000, according to the survey median.

Today’s GDP report, the second of three estimates, will include figures on corporate profits not available in the advance figures issued in July.

Consumer spending, which accounts for 70 percent of the economy, probably fell last quarter at a 1.3 percent annual pace, a bigger drop than first estimated, the survey showed.

Reports so far this month have shown government efforts to thaw credit markets and boost spending may be taking hold. Combined sales of new and exiting homes in July reached a 5.67 million annual pace, the highest level since November 2007, the month before the recession began.

Auto Sales

Industry data showed sales of cars and light trucks rose to an 11.2 million annual unit rate in July, the highest since September. General Motors Co. and Chrysler Group LLC, both out of bankruptcy, are among firms set to ramp up production as government efforts lift demand.

The “cash for clunkers” program, which offered buyers discounts of as much as $4,500 to trade in older cars and trucks for new, more fuel-efficient vehicles, produced almost 700,000 automobile sales before ending on Aug. 24, the Transportation Department said yesterday.

A drop in other purchases last month signals a lack of spending may temper the recovery. Retail sales excluding auto dealers unexpectedly fell in July as Americans cut back on furniture, electronics, building materials, groceries and sporting goods, figures from the Commerce Department showed.

Target Corp., the second-largest U.S. discount retailer, is among companies trimming costs to make up for slower sales. The Minneapolis-based company reported second-quarter profit that fell less than analysts estimated as the company avoided markdowns.

‘Challenging’ Environment

“We continue to conservatively manage our inventories to help us navigate the challenging sales environment,” Kathryn Tesija, Target’s vice president for merchandising, said in an Aug. 18 conference call.

Business investment is another area that may be improving. Orders for goods meant to last several years jumped in July by the most in two years, the Commerce Department said yesterday. The report also showed a measure of shipments used in calculating GDP climbed for a second month.

The economy will expand 2 percent or more in four straight quarters through June, the first such streak in more than four years, according to the median estimate of 53 forecasts in a Bloomberg News survey earlier this month. Economists at Morgan Stanley were among those lifting growth estimates for this quarter after yesterday’s report on durable goods.

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