Friday, July 27, 2012

GDP and Employment

Today's release about second quarter GDP growth of 1.5%, while unsurprising, is another indication of how bad this so-called recovery is for Americans.

We need 3%-4% growth to reduce unemployment. That's due to the simple math of 2%-3% productivity gains over time and 1% population growth. We need that much growth just to keep the employment situation from becoming even more difficult for U. S. households.

Current Recovery Second Slowest Postwar Rebound puts the report in a proper historical context for us:

"The current economic recovery is less robust than initially thought and — through its first two-and-half years — the second-weakest rebound of the post World War II era, according to data the Commerce Department released Friday.

From the second quarter of 2009, when the recession ended, through 2011, the economy grew a total of 5.8%, a downward revision from a 6.2% gain, the recasting of the past three years’ gross domestic product figures found. Only the brief 4-quarter recovery in 1980 and 1981, when the economy grew a total of 4.4%, was weaker in the past 60 years.

Growth in the early part of 2010 wasn’t nearly as strong as previously thought, with GDP advancing 2.3% and 2.2% in the first and second quarter, respectively. That’s down from prior readings of near 4.0% annualized growth. Business investments in the first half of 2010 are now seen as being much weaker.

Conversely, the data showed the most recent recession was milder than prior readings – though still the largest downturn since the Great Depression. During the recession, which began in the fourth quarter of 2007, GDP declined 4.7%, compared to a previous reading of down 5.1%. The next worse recession since World War II came in parts of 1957 and 1958, when the economy contracted by 3.7%."

U.S. Growth Slows in 2nd Quarter has more details about the lousy economic conditions:

"Growth slowed from the prior quarter as the pace of consumer spending eased and state and local governments continued to cut.

Personal consumption expenditures rose only 1.5% during the quarter, the smallest gain in a year and down from a 2.4% increase in the first quarter. Spending on durable goods--items such as cars and home appliances meant to last at least three years--fell 1.0% in the second quarter.

Government spending subtracted 0.28 of a percentage point from overall growth. State and local spending fell 2.1% during the quarter while federal outlays declined a more mild 0.4%.

Those declines, however, come ahead of planned federal spending cuts and tax hikes set to take place early next year.

Nonresidential fixed investment, a category that includes business spending on structures and equipment, grew 5.3% during the second quarter, a more mild gain than the 7.5% increase in the prior period.

Changes to private inventory, which was a drag on the economy in the first quarter, contributed a positive 0.32 percentage point to overall growth in the most recently ended quarter.

Real final sales--GDP less changes in private inventories--increased just 1.2% in the second quarter, down from a 2.4% gain in the prior period.

In a positive sign, exports grew for the third consecutive quarter, posting a 5.3% gain from April through June, suggesting that the sovereign-debt crisis in Europe isn't hurting exports as much as some feared.

But overall trade was still a drag on the economy as imports, which subtract from GDP, grew faster, at a 6.0% rate during the quarter.

Spending on home building and other residential investment slowed to a 9.7% gain in the second quarter, but it was the fifth straight improvement after a long downturn during the housing crisis."


The economy continues to struggle. Government knows best policies continue to disappoint us.

We'll have more to say on all this later. Just wanted to share the breaking news now, bad as it is.

Thanks. Bob.

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