4% Economic Growth
Kurt Brouwer August 30th, 2007
Economic growth surged in the second quarter. Originally, GDP growth came in at 3.4% after inflation. Now, that number has been revised upward to an even 4% as this AP story illustrates [emphasis added]:
‘…The U.S. economy grew an annualized real 4.0 percent in the second quarter of 2007, up from an initially estimated 3.4 percent and hitting the highest growth since the first quarter of 2006, the Commerce Department said in a revised report Thursday.
The department traced the upward revision from the initial report last month to solid improvements in private investment in nonresidential items and exports.
The revised April-June growth in terms of inflation-adjusted gross domestic product matched a widely forecast expansion of around 4.0 percent and far eclipsed the first quarter’s torpid 0.6 percent growth…’
Okay, so the economy is surging. But wait, it’s really grinding to a halt. The AP goes on to lay out a litany of potential woes:
‘… However, the growth trend is not expected to last long. A credit squeeze stemming from increasing defaults on subprime mortgages has wreaked havoc in global financial markets, thus raising the specter of significantly slower growth in coming quarters…’
I would be dreaming if I did not think that economic growth has slumped due to the subprime lending mess, the resulting traffic jam in our credit markets as well as slumping residential construction. These problems are real. Yet, our economy has proven to be remarkably resilient in the face of soaring energy prices, slumping home prices, higher interest rates and many more negatives. No doubt the falling housing market will hurt. So will layoffs in construction, mortgage banking and home builders. But, despite all the problems, economic growth this year should still be solid.
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