Economy Surged 4% in Spring, But Housing Slump May Soon Hurt

WASHINGTON — The American economy surged in the spring, rising faster than first thought, but analysts see the housing slump bogging down growth in the second half of 2007.

Gross domestic product rose at a seasonally adjusted 4.0% annual rate in the second quarter, the Commerce Department said yesterday.

Originally, Commerce had estimated growth at 3.4% for the April-through-June period. Stronger business spending and overseas sales led to the upward revision to GDP, the measure of all goods and services produced in the economy.

"The government revised its estimate of second-quarter growth and the statisticians managed to find a lot more growth," the president of an economic consulting firm, Naroff Economic Advisors, Joel Naroff, said. "Much of it came from an even-better reduction in the trade deficit than first estimated and also in capital expenditures."

The new, revised estimate of 4.0% GDP growth was much more robust than the first quarter's listless 0.6% pace and marked the strongest quarterly rate of growth since 4.8% during the first three months of 2006. But the troubles in the housing sector, which spilled into Wall Street this month and sent the stock market reeling, will haunt the economy through the rest of the year, analysts said.

"Housing activity is going to weaken significantly further, and consumer spending is soggy," an analyst at MFR Inc., Joshua Shapiro, wrote in a note to clients. "Real GDP growth in Q3 is thus likely to be well below that of Q2, with something on the order of 2.5% now looking to be a reasonable bet. A further slowdown is likely in Q4 as housing continues to bite and output growth slows in line with final demand."

Housing is a component of GDP called residential fixed investment. It tumbled by 11.6% in the second quarter, the government said yesterday, a drop bigger than the previously reported 9.3% plunge.