GDP Shrinks at 1% Pace, Less than Feared
The economy sank at a pace of just 1 percent in the second quarter of the year, a new government report shows. It was a better-than-expected showing that provided the strongest signal yet that the longest recession since World War II is finally winding down.
The dip in gross domestic product for the April-to-June period, reported by the Commerce Department on Friday, comes after the economy was in a free fall, tumbling at 6.4 percent pace in the first three months of this year. That was the sharpest downhill slide in nearly three decades. The economy has now contracted for a record four straight quarters, underscoring the grim toll of the recession on consumers and companies.
Many economists were predicting a slightly bigger 1.5 percent annualized contraction in second-quarter GDP. It's the total value of all goods and services - such as cars and clothes and makeup and machinery - produced within the United States and is the best barometer of the country's economic health.
Less drastic spending cuts by businesses, a resumption of spending by federal and local governments and an improved trade picture were key forces behind the better performance. Consumers, though, pulled back a bit. Rising unemployment, shrunken nest eggs and lower home values have weighed down their spending.
An important area where businesses ended up cutting more deeply in the spring was inventories. They slashed spending at a record pace of $141.1 billion. There was a silver lining to that, though: With inventories at rock-bottom, businesses may need to ramp up production to satisfy customer demand. That would give a boost to the economy in the current quarter.
Federal Reserve Chairman Ben Bernanke has said he thinks the recession will end later this year. And many analysts think the economy will start to grow again - perhaps at around a 1.5 percent pace - in the July-to-September quarter. That would be anemic growth by historical measures, but it would signal that the downturn has ended.
Obama's stimulus package of tax cuts and increased government spending provided some support to second-quarter economic activity. But it will have more impact through the second half of this year and will carry a bigger punch in 2010, economists said.
Even if the recession ends later this year, the job market will remain weak. Companies are expected to keep cutting payroll through the rest of this year, but analysts say monthly job losses likely will continue to narrow.
Still, unemployment - now at a 26-year high of 9.5 percent - will keep rising. The Fed says it will top 10 percent at the end of this year. Businesses will be unlikely to boost hiring until they're certain the recovery has staying power.
In the second quarter, businesses continued to cut all kinds of spending, but not nearly as much as they had been, one of the reasons the economy didn't contract as much.
For instance, they trimmed spending on equipment and software at a 9 percent pace in the second quarter, compared with an annualized drop of 36.4 percent in the first quarter. Similarly, they cut spending on plants, office buildings and other commercial construction at a rate of 8.9 percent, an improvement from the annualized drop of 43.6 percent in the first quarter.
Housing - which led the country into recession - continued to be a drag on the economy. Builders cut spending at a rate of 29.3 percent, also an improvement from the 38.2 percent annualized drop reported in the first quarter.
Consumers, meanwhile, did a slight retreat in the spring.
They sliced spending at a rate of 1.2 percent in the second quarter, after nudging up purchases at a 0.6 percent pace in the first quarter. It turns out that consumers didn't nearly have the appetite to spend in the first quarter as the government previously thought, according to revisions released Friday.
With consumers spending less on everything from cars to clothes, Americans' savings rate rose sharply - to 5.2 percent in the second quarter, the highest since 1998.
A return to spending by governments helped economic activity in the spring. The federal government boosted spending at pace of 10.9 percent, the most since the third quarter of 2008. And state and local governments increased spending at a pace of 2.4 percent, the most since the second quarter of 2007.
An improved trade picture also added to economic activity in the spring. Although exports fell, imports fell more, narrowing the trade gap. That added 1.38 percentage points to second-quarter GDP.
The convergence of a collapse in the housing market, a near shutdown of credit and a financial crisis created what Bernanke and others have called a perfect storm for the economy. Those negative forces - the scale of which hasn't been seen since the 1930s - plunged the country into a recession in December 2007. It is the longest since World War II.
Bernanke and his Fed colleagues warned earlier this month that it could take five or six years for the economy and the labor market to return to long-term health. Recoveries after financial crises tend to be especially slow.
The economy's still-fragile state makes it vulnerable to any further shocks, Fed officials say. Given that, Fed policymakers are expected to keep a key bank lending rate - which influences rates on many consumer loans - at a record low near zero at its meeting in August and probably through the rest of this year, analysts say.
AP The dip in gross domestic product for the April-to-June period, reported by the Commerce Department on Friday, comes after the economy was in a free fall, tumbling at 6.4 percent pace in the first three months of this year. That was the sharpest downhill slide in nearly three decades. The economy has now contracted for a record four straight quarters, underscoring the grim toll of the recession on consumers and companies.
Many economists were predicting a slightly bigger 1.5 percent annualized contraction in second-quarter GDP. It's the total value of all goods and services - such as cars and clothes and makeup and machinery - produced within the United States and is the best barometer of the country's economic health.
Less drastic spending cuts by businesses, a resumption of spending by federal and local governments and an improved trade picture were key forces behind the better performance. Consumers, though, pulled back a bit. Rising unemployment, shrunken nest eggs and lower home values have weighed down their spending.
An important area where businesses ended up cutting more deeply in the spring was inventories. They slashed spending at a record pace of $141.1 billion. There was a silver lining to that, though: With inventories at rock-bottom, businesses may need to ramp up production to satisfy customer demand. That would give a boost to the economy in the current quarter.
Federal Reserve Chairman Ben Bernanke has said he thinks the recession will end later this year. And many analysts think the economy will start to grow again - perhaps at around a 1.5 percent pace - in the July-to-September quarter. That would be anemic growth by historical measures, but it would signal that the downturn has ended.
Obama's stimulus package of tax cuts and increased government spending provided some support to second-quarter economic activity. But it will have more impact through the second half of this year and will carry a bigger punch in 2010, economists said.
Even if the recession ends later this year, the job market will remain weak. Companies are expected to keep cutting payroll through the rest of this year, but analysts say monthly job losses likely will continue to narrow.
Still, unemployment - now at a 26-year high of 9.5 percent - will keep rising. The Fed says it will top 10 percent at the end of this year. Businesses will be unlikely to boost hiring until they're certain the recovery has staying power.
In the second quarter, businesses continued to cut all kinds of spending, but not nearly as much as they had been, one of the reasons the economy didn't contract as much.
For instance, they trimmed spending on equipment and software at a 9 percent pace in the second quarter, compared with an annualized drop of 36.4 percent in the first quarter. Similarly, they cut spending on plants, office buildings and other commercial construction at a rate of 8.9 percent, an improvement from the annualized drop of 43.6 percent in the first quarter.
Housing - which led the country into recession - continued to be a drag on the economy. Builders cut spending at a rate of 29.3 percent, also an improvement from the 38.2 percent annualized drop reported in the first quarter.
Consumers, meanwhile, did a slight retreat in the spring.
They sliced spending at a rate of 1.2 percent in the second quarter, after nudging up purchases at a 0.6 percent pace in the first quarter. It turns out that consumers didn't nearly have the appetite to spend in the first quarter as the government previously thought, according to revisions released Friday.
With consumers spending less on everything from cars to clothes, Americans' savings rate rose sharply - to 5.2 percent in the second quarter, the highest since 1998.
A return to spending by governments helped economic activity in the spring. The federal government boosted spending at pace of 10.9 percent, the most since the third quarter of 2008. And state and local governments increased spending at a pace of 2.4 percent, the most since the second quarter of 2007.
An improved trade picture also added to economic activity in the spring. Although exports fell, imports fell more, narrowing the trade gap. That added 1.38 percentage points to second-quarter GDP.
The convergence of a collapse in the housing market, a near shutdown of credit and a financial crisis created what Bernanke and others have called a perfect storm for the economy. Those negative forces - the scale of which hasn't been seen since the 1930s - plunged the country into a recession in December 2007. It is the longest since World War II.
Bernanke and his Fed colleagues warned earlier this month that it could take five or six years for the economy and the labor market to return to long-term health. Recoveries after financial crises tend to be especially slow.
The economy's still-fragile state makes it vulnerable to any further shocks, Fed officials say. Given that, Fed policymakers are expected to keep a key bank lending rate - which influences rates on many consumer loans - at a record low near zero at its meeting in August and probably through the rest of this year, analysts say.
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Uhh, pretty sure they covered that in the headline, Einstein.
"BETTER THAN EXPECTED Performance Possible Sign of Easing Recession"
Well, Mr. "Brain Trust", health care reform has acutally been a topic that has been discussed since the early 90's. It's not like all of a sudden it's become a problem. All we've done for the last 20 years is TALK about the health care system. And now you want to rail Obama for actually wanting to DO something? But, I guess that's what you neo-cons are all about: ALL TALK, NO ACTION.
Yep, Fox News. But I'm sure the entire rest of the media is just reporting false things, and it's only Fox that is telling the truth!
-------------------------------------
Since this bush/cheney depression was brought on by corporate GREED in an unregulated market of unfettered capitalism, it needed a different recovery plan that the moronic republiCONS fought tooth and nail, since government spending was the only way out!
The moronic republiCONS continue to live in the past trying to conjure up the ghost of "ronnie the rat" raygun and his failed CONServitard policies and ideology of 30 years ago, when the vast majority of Americans can plainly see that a new kind of recovery was needed -- making investments to run vital systems more intelligently and efficiently, thus creating a new infrastructure on which the private sector can work its magic.
The moronic republiCONS continue to live in the past and have NO VISION for the future, NO NEW IDEAS or SOLUTIONS, and yet this is a new kind of recession/depression -- one caused by turmoil in housing and finance rather than manufacturing or weak consumer spending -- and needed government intervention that the GOP fought in every way! It means eschewing the blunt economic instruments we've always used and focusing resources and rhetoric on strategic sectors: renewable energy/green technology, infrastructure, broadband, and health care.
A bigger problem for this nation is the level of debt that US citizens hold. This figure is greater than GDP and grew bigger in 2007. The last time this happened was in 1929.
Obama's support around the world continues to grow and create opportunity for repairing the USA global relations and economic developement.
Those who are employed are working harder than ever.
------------------------------
This is great news for ALL Americans except for the shrinking minority party of southern, white, evangelical morons in what is left of the republiCON party aligned with foxnewsus propagandus!
Things are getting worse by the day and
you people still follow Obama off a cliff.
Fourteen thousand lose their health care each day (PolitiFact). Five million have lost health insurance in the last nine months. UnitedHealthcare made over three quarters of a billion dollars last quarter alone. The Blue Dog Democrats who are helping to hold up the works are having their campaigns funded by the health insurance industry. That was reported in several places today. If you are insured, there is a high likelihood you will lose that insurance or your job (so they don't have to insure you) if you get an expensive illness.
It is time for a public option health care plan.
Well, Mr. "Brain Trust", health care reform has acutally been a topic that has been discussed since the early 90's. It's not like all of a sudden it's become a problem. All we've done for the last 20 years is TALK about the health care system. And now you want to rail Obama for actually wanting to DO something? But, I guess that's what you neo-cons are all about: ALL TALK, NO ACTION.
I hear Republicans argue that health care is expensive, so leave it out of the budget....or suffer trying to pay for it...have pride...don't take a government handout.
Democrats have been trying to say the Health Care package proposal is not a government hand out. We all pay and we all use. That is the principal government priority - to serve the people who created it....government is a good thing.
We borrowed and went into debt one trillion dollars for a war!! Insane!!
It is like saying to your family, "Forget using a credit card to go see a doctor!! or paying for medicine!!" and then saying "Honey, I need the credit card to buy a gun - for a security system to defend our home"
Where are your priorities people!?!?!?