CNBC reports the already dismal economic news from the second quarter just got worse:
The U.S. economy grew much slower than previously thought in the second quarter as business inventories and exports were less robust, a government report showed on Friday, although consumer spending was revised up.
Gross domestic product growth rose at annual rate of 1.0 percent the Commerce Department said, a downward revision of its prior estimate of 1.3 percent. It also said after-tax corporate profits rose at the fastest pace in a year.
Economists had expected output growth to be revised down to 1.1 percent. In the first quarter, the economy advanced just 0.4 percent. The government’s second GDP estimate for the quarter confirmed growth almost stalled in the first six months of this year.
The second Recovery Summer has been just as exciting as the first one!
The United States is on a recession watch after a massive sell-off in the stock market knocked down consumer and business sentiment. The plunge in share prices followed Standard & Poor’s decision to strip the nation of its top notch AAA credit rating and a spreading sovereign debt crisis in Europe.
While sentiment has deteriorated, data such as industrial production, retail sales and employment suggest the economy could avoid an outright contraction.
That sounds like a great platform for the Obama re-election campaign: “I Avoided An Outright Contraction.” I’m not kidding – that will be the basis of his campaign, along with “Four Years Later, It’s Still Bush’s Fault.”
The downward revisions to second-quarter growth came as businesses accumulated less stock than previously estimated. Business inventories increased $40.6 billion instead of $49.6 billion, cutting 0.23 percentage point from GDP growth during the quarter.
However, the slow build-up of inventories means goods are not piling up on shelves, which should support growth in the third quarter. Excluding inventories, the economy grew at a 1.2 percent rate.
I thought we just had reports that consumer confidence was down. In fact, a recent Bloomberg News report said it had dropped to a three-decade low. Growth in personal consumption expenditures was actually lower in the second quarter: 0.4%, compared to 2.1% in Q1. I don’t know if it’s wise to count on people keeping those shelves clean by buying stuff… at least, not at full price, which means not at a profit. Profits, as you may know if you’re not a member of the Obama economic team, are what cause businesses to expand and hire people.
Bloomberg News offered the following explanation for the slump in consumer confidence:
The biggest one-week slump in stocks since 2008 and the threat of default on the nation’s debt may have exacerbated consumers’ concerns as unemployment hovers above 9 percent and companies are hesitant to hire. Rising pessimism poses a risk household spending will cool further, hindering a recovery that Federal Reserve policy makers said this week was already advancing “considerably slower” than projected.
“The mood is very depressed,” said Chris Christopher, an economist at IHS Global Insight Inc. in Lexington, Massachusetts. “Consumers are very fatigued and very uncertain. In the short term, people are going to pull back on spending.”
Do any of those factors seem likely to change much in the third quarter? One of the reasons for the “rising pessimism” is that consumers keep hearing the same laughable nonsense about a magical recovery that’s merely advancing “considerably slower than expected.”
Besides sounding like the weak political spin it is, these excuses shift the blame for the Obama Depression onto the populace: Why aren’t you people recovering as fast as you should have? You’re not performing as well as our blue-ribbon economists said you would! That’s a fine recipe for increased pessimism.
The Congressional Budget Office recently projected 2.3% GDP growth for the year, and made this part of a widely derided forecast for a reduced budget deficit and lower unemployment. When we thought Q2 growth was 1.3%, we would have needed 3.8% growth for the rest of the year to hit that target. According to Forbes, the new Commerce Department report also revised the awful first-quarter growth down, to 0.4%. That means Q2 grew from 0.4% to 1.0% (yippee!) but now the relatively sunny projections of the Congressional Budget Office are even more unrealistic.
The Goldman-Sachs prediction of 1% to 1.5% growth for the rest of the year seems far more reliable:
“In light of the downshift in the data this week, we are cutting our second-half growth forecasts further,” Goldman said in a research note. It was the firm’s third cut in GDP estimates in August.
Goldman now expects gross domestic product growth of 1.0 percent in the third quarter and 1.5 percent in the fourth — both down from 2.0 percent previously.
“From already quite low growth rates, it appears that the U.S. economy is losing further momentum,” Goldman said.
We didn’t have much momentum to use. GDP growth above 3% is generally viewed as necessary for significant employment growth. Listen carefully to Obama’s big post-Labor Day speech, and see if you hear any ideas that might prompt anything except the government to grow at 3% for the rest of his disastrous term.
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