Meltdown 101: GDP Report, by the Numbers

Friday's report on the gross domestic product has led many analysts to believe that the economy will see a much healthier rebound later this year than was previously expected.

But the rapid rebound may still give way to a more gradual recovery next year.

The Commerce Department's report on GDP, the broadest measure of the nation's economic output, said the economy contracted at a 1 percent annual pace in the April-to-June period. That's above analysts' expectations and much better than the 6.4 percent decline in the first quarter, raising hopes that the current recession, the longest since World War II, is ending.

Beyond the headline number, other data in the report have caused some economists to raise their forecasts for the July-to-September quarter. Many analysts previously expected the economy to grow at a tepid 0.5 percent annual pace in the third quarter. But now, economists are projecting growth rates in the 3 percent to 4 percent range.

One reason for the change is the record drop in business inventories in the second quarter. Companies cut their stockpiles by $141.1 billion, in response to slowing sales. While that reduced economic growth in the April-June quarter, it helps set the stage for a rebound.

"With lean inventories, production will be cranked up in order to restock," said Sung Won Sohn, an economics professor at California State University, Channel Islands.

The Obama administration's $787 billion stimulus package is also expected to provide a boost in the fall. Federal government spending added 0.82 percentage points to GDP in the second quarter, after subtracting from growth in the first quarter, the report showed.

Housing, meanwhile, is expected to act as a much smaller drag in the second half of this year, economists said, as recent reports have shown home sales increasing.

Still, economists caution that strong growth in the second half of this year, if it does occur, could be temporary. Consumer spending fell in the April-to-June quarter by 1.2 percent, disappointing many economists, and most expect it to remain weak.