GDP 2nd Qtr 2010

Playing catch-up here on blog posts, but this was the news two weeks ago.  Second quarter GDP growth rate was revised downward to a 1.6% rate.  The original, first-month “flash” estimate issued at the end of July 2010 said that GDP in the second qtr grew at a 2.4% rate.  That by itself was a slow down from first quarter’s 3.7%.  But this latest news, the first revision of the 2nd qtr number says things were slowing more than previously thought.

So GDP slowed from a 3.7% rate in the first quarter to only 1.6% in second quarter.  That’s in line with my own gut feel (no fancy model, just intuition).

It’s not looking good at all.  Just by itself, 1.6% is unacceptable – even if had been at full employment to begin with.  1.6% won’t keep up with population growth, let alone help us dig out of this giant hole of lost production we’ve been for 2 1/2 years.  The news on the horizon isn’t encouraging either.  Unemployment rate near 10% and there’s little on the horizon that would plausibly stimulate things.  Housing is still in the tank and yet still overpriced.  No reason for businesses to commit to investment spending with no foreseeable demand and excess capacity abounding.  Government spending, after the too-small stimulus spurt last year is slowing.  Consumers lack income growth (remember that unemployment number?) and are rationally trying to cut back spending to spending to pay off debt.

That means the growth isn’t likely to come from C, or I, or G. That leaves X-M, net exports.  And that depends on exchange rates and growth elsewhere in the world.  Not good.  Not good at all.  I call a 50-50 chance we actually see negative growth in either 3rd or 4th quarter.