This Is Why We Were All So Focused On Chelsea’s Wedding: All The Bad News

Graph from Daniel Indiviglio

Bureau of Economic Analysis:

Real gross domestic product — the output of goods and services produced by labor and property
located in the United States — increased at an annual rate of 2.4 percent in the second quarter of 2010,
(that is, from the first quarter to the second quarter), according to the “advance” estimate released by the
Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

The Bureau emphasized that the second-quarter advance estimate released today is based on
source data that are incomplete or subject to further revision by the source agency (see the box on page 3).
The “second” estimate for the second quarter, based on more complete data, will be released on
August 27, 2010.

Heather Horn at The Atlantic with the round-up. Horn:

U.S. economic growth slowed in the second quarter, the Commerce Department announced on Friday. Simultaneously, Commerce revised its assessments of previous quarters’ growth, to reflect new information both that the recession was “deeper than earlier believed,” as The Wall Street Journal puts it, and that growth in the first quarter of this year was higher than earlier believed.

What do these reports actually mean?

Calculated Risk:

A few key numbers:

  • “Real personal consumption expenditures increased 1.6 percent in the second quarter, compared with an increase of 1.9 percent in the first.”PCE is slowing.
  • Investment: Nonresidential structures increased 5.2 percent, in contrast to a decrease of 17.8 percent. Equipment and software increased 21.9 percent, compared with an increase of 20.4 percent. Real residential fixed investment increased 27.9 percent, in contrast to a decrease of 12.3 percent.Residential investment was boosted by the tax credit and will decline in Q3.
  • “The change in real private inventories added 1.05 percentage points to the second-quarter changein real GDP after adding 2.64 percentage points to the first-quarter change.”That is probably the end of the inventory adjustment.
  • Daniel Indiviglio at The Atlantic:

    Consumer Spending

    Americans spent more in the second quarter than they did in the first, as consumer expenditures rose by 1.6%. That is, however, a slower rate of growth than the first quarter’s value of 1.9%. Consumer spending was effectively responsible for about half of net GDP growth in Q2.

    Within spending, measures that suggest stronger consumer confidence mostly improved. In general, spending on services was relatively strong, up 0.8%. That’s after being nearly flat in the first quarter. The numbers also indicate that Americans were eating in less and out more, which is generally a sign that they aren’t being as stingy with their money. Durable good sales also grew pretty much across the board, with more autos, furniture, and recreational purchases all adding to growth.


    Gross private domestic investment grew at approximately the same rate as it did in the first quarter — by around 29%. Businesses continued investing more in equipment and software last quarter. Industrial equipment purchases grew sharply, after a flat first quarter. Firms’ investment in structures also grew in Q2, after a decline in the quarter prior.

    One significant part of investment came through additional residential investment, as the home buyer credit drove purchases for part of the second quarter. After a 12.3% decline in Q1, they grew by 27.9% last quarter.

    Net Exports

    The only real black eye in the report came with net exports. They contracted significantly. In the first quarter, they were responsible for slicing just 0.31% off of GDP growth, but last quarter their negative contribution was equal to GDP’s entire net growth value. In other words, if Americans didn’t buy so many more products from other nations compared to what they sold those countries, GDP growth would have been more than double the 2.4% total.

    The culprit here was imports. Export growth were essentially flat from Q1 to Q2, but imports grew more than twice as quickly last quarter compared to the first, by 28.8%.

    Government Spending

    Finally, the government spending grew significantly. Here, we saw a reversal with state expenditures. They declined by 3.8% in the first quarter, but grew by 1.3% in the second. Federal spending, however, grew at far brisker pace of 9.2% in the second quarter, compared to a much slower 1.8% growth rate in the first part of the year.

    Joseph Lazzaro at Daily Finance:

    In the second quarter, one clear reason the U.S. economy performed well below its potential was that budget-pinched consumers remained frugal. Consumer spending rose at a 1.6% rate, down from a 1.9% rate in the first quarter. Meanwhile, final sales increased a modest 1.3%, compared to 1.1% in the first quarter.

    However, business investment represented a ray of light, surging 17% after rising 7.8% in the first quarter.

    Imports also soared at a 28.2% pace in the second quarter, while exports rose at a 10.3% rate. However, the trade deficit means net exports subtracted from GDP growth in the second quarter.

    GDP Likely To Intensify Washington Debate

    The sub-par second quarter GDP growth rate also is likely to intensify the debate in Washington between Republicans and Democrats concerning how best to stimulate the economy and prevent a double-dip recession.

    Republicans argue that fiscal stimulus hasn’t worked, and the answer lies in federal tax cuts to free up money in the private sector. The GOP says extending the 2001 Bush income tax cuts would be a good first step in this process. Further, they say government spending also must be cut and federal regulations eliminated to allow the economy to grow faster.

    Democrats counter that the fiscal stimulus has worked — it prevented a deeper recession — and that its main flaw was that the stimulus wasn’t big enough given the massive GDP hole created by the bursting of the housing bubble and the accompanying financial crisis.

    One thing Republicans and Democrats can agree on: The U.S. economy is growing far too slowly and will need some engine of growth — tax cuts, fiscal stimulus, or otherwise — to both lower unemployment and keep corporate revenue and earnings rising.

    Ryan Avent at Free Exchange at The Economist. More Avent:

    Which means that the economy will struggle to hit even the low range of the Fed’s output forecast. And the price index for core personal consumption expenditures continued to tick downward.

    The result is likely to shake up the debate at the August Fed meeting and is very likely to increase the calls for new stimulus measures on Capitol Hill. The faster growth recorded in the two prior quarters failed to generate much of a boost in employment, and legislators, particularly those facing a November election, may fear that labour market recovery will slow even more amid weak economic growth. But there are few easy answers available. Last week, the Senate only barely passed a tiny, $34 billion extension to unemployment benefits. The best hope for American workers—and for vulnerable legislators—may be renewed interest in expansionary policy at the Federal Reserve.


    Things are worse than was predicted and have been worse than we thought. I get that the administration is constrained by a Senate which can’t even pass a crappy jobs bill filled with tax breaks which won’t do much, but they could have done something with HAMP both to help people and to help the broader economy. And they didn’t.

    Ed Morrissey:

    This is a political disaster for Democrats.  There’s no way to spin a 2.4% GDP rate as a positive step in a recovery.  Worse yet, the pattern has been to revise these numbers downwards when Commerce firms up its data.  The next statement of Q2 GDP will come on August 27, just before Congress comes back in session and right at the prime time of summer campaign season, just a week before Labor Day.  If this drops much lower in the next iteration, Democrats will have to explain the failure of their economic program to angry voters across the nation — and they’re not going to want to hear “It’s Bush’s fault!” two years after electing Obama and four years after giving Nancy Pelosi and Harry Reid control of Congress.

    Doug Mataconis continues:

    Indeed not.

    While I still remain skeptical about the prospects for huge Republican gains in November, the pieces are coming into place to create exactly the type of political environment that might bring that about. A bad economy. An unpopular war. And, a President who has clearly lost much of the magic he had two years ago during the election.

    Hang on, because this is about to get very interesting.

    James Pethokoukis:

    Politically,  the issue is not whether the U.S. economy will slip into a double-dip recession — though it is hardly out of the question for a negative GDP quarter to pop up this year.  It’s how the economy will impact voter mood in 100 days. Will they think America is back on track toward prosperity with growth below trend and unemployment hovering around double digits? That seems unlikely to me.

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    Filed under Economics, The Crisis

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