Economy Loses Whatever Pep It Had

Double dip, not quite. Anemic recovery, more likely, but in any case no one is happy with the growth rate of the economy. On Friday the Bureau of Economic Analysis put the annualized U.S. GDP growth at 2.4 percent during 2Q10, compared with 3.7 percent in 1Q10.

August 2, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user klynslis

Double dip, not quite. Anemic recovery, more likely, but in any case no one is happy with the growth rate of the economy. On Friday the Bureau of Economic Analysis put the annualized U.S. GDP growth at 2.4 percent during 2Q10, compared with 3.7 percent in 1Q10.

“The deceleration in real GDP in the second quarter primarily reflected an acceleration in imports and a deceleration in private inventory investment,” the bureau said in a statement marked by government-ese. Those drops were “partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.”

Imports, in other words, ate up a lot of growth, and most businesses have stocked themselves for now (with goods made in China, mostly), so inventory growth isn’t the driver it has been. Consumers’ reluctance to spent was also a drag on the economy. People are saving again, spooked by bad economic news. Personal savings–disposable income minus less outlays–was $701.1 billion in 2Q10, compared with $621.1 billion in 1Q10. That was the case even though personal disposable income increased in the second quarter by 4.4 percent compared with the first quarter.

Consumers Not Very Peppy in July, Either

The University of Michigan/Reuters consumer sentiment index for the last half of July was also published on Friday, and the mood consumers wasn’t much better than it had been in mid-July–lousy, in a word. But at least the index didn’t drop the steep way it did between late June and the preliminary mid-July figure, about 10 points. In fact, the index edged upward by 1.3 points to 67.8, compared with 66.5 at mid-month July but 76.0 at month-end June 2010.

“Overall, the survey data suggest the current slowdown in spending is likely to persist well into 2011,” Richard T. Curtin, director of survey, said in the statement. “While a double-dip is still unlikely, it now has a non-ignorable 25 percent probability.”

On the other hand, the July Institute for Supply Management national index is now expected to go up when the numbers are released on Monday. The ISM index is based on a survey of manufacturers about their activity, as opposed to asking consumers questions about how they feel, and the Chicago regional index turned in surprisingly strong numbers on Friday–62.3 in July, compared with 59.1 in June. As Chicago goes, so goes the nation (usually), at least in manufacturing.

The Latest Economic Term: Quasi-Recession

Last month, the recovery was “unusually uncertain,” to use the phrase of the current chairman of the Federal Reserve. Over the weekend, former Fed chairman Alan Greenspan called the current state of affairs a “quasi-recession.” He told Meet the Press that “a pause in the modest recovery feels like a quasi-recession.”

The former chairman was equally dour on the prospect of unemployment. “There is a gradual increase in employment but not enough to reduce the level of unemployment,” he posited. “There is nothing out there that I can see which will alter the trend or the level of unemployment in this country.”

Wall Street had all the makings of a down day on Friday after the GDP report, but two of the three major indices managed to claw their way into positive territory. But not the Dow Jones Industrial Average, which lost 1.22 points, or a scant 0.01 percent. The S&P 500 and the Nasdaq, by contrast, were up 0.01 percent and 0.13 percent, respectively.