The Bureau of Economic Analysis released the “advance estimate” of 2nd Quarter 2011 GDP growth. The numbers are bad. Worse than most analysts expected. I’ll let BEA explain:
Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 1.3 percent in the second quarter of 2011, (that is, from the first quarter to the second quarter), according to the "advance" estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.4 percent.
A 1.3 percent annualized growth rate is very bad. Yes, it’s a positive number which indicates real growth and not decline, but it’s not enough to keep people even, let alone putting unemployed people back to work. What’s worse, the BEA, as part of it’s annual revision process in July of year, revises the past numbers based on better data and better information than what was available at the time. They revised their estimate of real GDP growth in first quarter 2011 down to 0.4% annualized rate from the previously estimated 1.8%.
Putting both quarters together it means the U.S. economy has grown at a 0.8% growth rate for the first six months of 2011. As said earlier, yes, that’s a positive number so it indicates “growth”. But that’s growth in the total or aggregate size of the economy. During those same six months our population grew at a 1% annualized rate. So do the math. The pie is 0.8% bigger but there’s 1% more mouths at the table. It means less per person.
I’ve mentioned before how economists have an inadequate vocabulary when it comes to describing the condition of the economy. We tend to use only the terms “recession”, which means decline or negative growth, and “recovery” which technically means “not a recession” or any positive growth rate. But not all positive growth rates have positive results.
There’s an unofficial term used in economics called a “growth recession”. A growth recession is when real GDP is growing – the rate is above zero – but it’s too small to really make an improvement in living standards or improvement in employment. That’s where we’re at now. We’re in a “growth recession”. Technically GDP is still growing, but it’s so slow and so weak that unemployment will actually rise.
Today’s news on GDP in first and second quarters has taken
many most analysts by surprise. But it really shouldn’t be a surprise. The Obama “stimulus” spending program started in 2009, which was way too small to begin with, is being phased out. With it federal government spending in the first six months has actually declined. The biggest culprit in the weak GDP numbers though is consumption spending by households. It has come to a virtual standstill at the end of June. Why? Well, unemployment is rising again – no jobs, no money to spend. Unemployment compensation has been cut in many states and many long-term unemployed have run out of benefits. Again, that cuts spending. And in Congress, Republicans with Obama’s help have been pushing a cut-spending, cut-deficits agenda. In economics this is called “contractionary fiscal policy”. And that’s what we’re getting – a contraction of GDP. No surprise really.