Economy Grew Modestly In Second Quarter
Kurt Brouwer July 31st, 2008
Source: Carpe Diem
As the following report from the Wall Street Journal indicates [free registration required; emphasis added], the economy grew modestly in the second quarter, fueled by exports and consumer spending. Given all the dire reports we have had on the economy, this is a positive, albeit mixed result. We had modest growth in this quarter on the one hand, but downward revisions in previous quarters. For example, GDP growth for the 4th quarter of 2007 was revised downward though from positive 0.6% to negative 0.2%. So this report has something for everyone — positive growth for those who believe we will muddle through this downturn and some negatives for those who believe we are in a recession.
GDP Accelerates In Second Quarter On Exports, Stimulus Spending (Wall Street Journal, July 31, 2008, Jeff Bater)
...Gross domestic product rose at a seasonally adjusted 1.9% annual rate April through June, the Commerce Department said Thursday in the first estimate of second-quarter GDP. The increase came below expectations on Wall Street. Businesses drew down inventories sharply, putting a big drag on GDP — yet suggesting smaller cuts in production down the road.
Price inflation gauges were mixed in the second quarter. The key price index for personal consumption expenditures rose by 4.2% after increasing 3.6% in the first quarter. The PCE price gauge excluding food and energy grew 2.1%, after increasing 2.3% in the first quarter.
GDP growth in the first quarter was revised down to a 0.9% rate of increase, compared to a previously reported 1.0% rate of increase.
The Commerce Department on Thursday also released revisions to past GDP numbers, stretching from 2005 through 2007. These adjustments show GDP shrank in the final months of 2007, declining 0.2% October through December instead of rising 0.6% in that quarter as previously reported. The decrease, however, doesn’t mean the nation slipped into a recession. A recession is widely defined as two consecutive quarters of economic decline. Third-quarter 2007 GDP surged 4.8%.
…International trade jolted the economy in the spring, adding 2.42 percentage points to GDP. U.S. exports rose by 9.2%. Imports decreased 6.6%, a likely reflection of higher oil prices constraining demand for foreign petroleum and of general economic weakness. In the first quarter, trade added 0.77 percentage point to GDP; exports in that period were 5.1% higher and imports fell by 0.8%.
Business spending climbed 2.3%. Investment in structures went up 14.4%. Equipment and software outlays decreased 3.4%. Overall first-quarter outlays by businesses had gone up 2.4%.
Businesses liquidated inventories sharply in the second quarter, by $62.2 billion. Stockpiles of all goods decreased by $10.2 billion in the first quarter. The deceleration cut April-June GDP by 1.92 percentage points. While the big drawdown hurt GDP in the spring, it signals companies won’t get caught with an oversupply of goods in the future. And that translates to less downward pressure on production…
We have had predictions of deep recessions for several months now and, so far, it has not happened. However, the growth we had in the second quarter was not very strong. This report is positive, but not conclusive. I think the third quarter is the key. If that is positive, we will probably be through the worst of the financial panic and slump brought on by the subprime lending mess and the steep drop in home prices.
One positive forward-looking sign was the business inventory issue. Businesses cut back on the goods they are holding for resale and that hurt second quarter GDP growth. Assuming they begin restocking that will be good for the third quarter. My prediction is that this quarter’s results will be interpreted by all sides as bolstering their argument — for weakness or for modest growth as the case may be. My opinion is that this report is not conclusive for either side.
- Business , Economy , Geopolitics , Money , inflation
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