The nation's gross domestic product expanded at a pitiful seasonally adjusted annual rate of 1.3 percent in the second quarter that ended June 30, the Department of Commerce reported today. This was a good deal worse than most experts had predicted for the period. In addition, first-quarter growth was revised from 1.9 percent to 0.4 percent, All in all, very bad news. Many analysts are saying the second half of the year will be better. But there's been little reason so far to be optimistic about that. Various July reports, including the Federal Reserve Board's Beige Book released this week, have indicated that already-slow growth is slowing still more in most regions.
In addition, the Commerce Department's Bureau of Economic Analysis revised its GDP assessment for the past eight years. Results: The recession was worse than previously thought and the "recovery" has been considerably weaker. In 2009, the economy shrank by 3.5 percent instead of the 2.5 percent that was earlier estimated.
In today's "advance" report, which will be revised over the next two months as additional data become available, consumer spending rose by an annualized rate of 0.1 percent. That was the worst showing in two years. In the first quarter, spending was up 2.1%. Durable goods decreased 4.4 percent, compared with a first-quarter increase of 11.7 percent. Nondurable goods increased 0.1 percent, compared with an increase of 1.6 percent and services increased 0.8 percent, the same as in the first quarter.
"All the data we got for June thus far suggest that as we entered the third quarter, we did not gain any momentum setting up for a good third quarter," said Christopher Probyn, chief economist at State Street Global Advisors in Boston.
"We are not starting the third quarter on a positive note," said Probyn, speaking before the GDP report was released.
In late 2010, some economists, including Fed Chief Ben Bernanke, said GDP growth this year might reach 4 percent. Such predictions long ago hit the trash bin. Analysts who in April predicted the second quarter would see annualized GDP growth of 3.5 percent or higher had begun downgrading their own estimates by mid-May. By late last week, the expert predictions fell mostly in the 1.6 percent to 1.9 percent range. As it turns out, even that wasn't pessimistic enough.
So far, the pathetic growth in the first six months of the year haven't weighed on corporate profits. On the contrary. Records are being reached. And yet, the corporations sit on trillions of dollars they aren't investing.
For rank-and-file Americans dependent on wages and salaries, the consequences have been less than encouraging. At a 2.5 percent growth rate, the job market treads water. Below that, the unemployment rate rises. That's exactly what has occurred in the past three months. Today's report is a strong indicator that next Friday's monthly job report will match those of May and June, in which a paltry 43,000 new jobs were created.
This bifurcated recovery, a real one for the well-to-do and one in name only for a huge chunk of the population, bodes ill. John Edwards would have rightly called this another example of the "two Americas."
At a 0.85 percent GDP growth rate—that's what we've now got for the first half of the year—there is the possibility of job losses instead of weak gains each month. Moreover, the term "double-dip recession" is again making frequent guest appearances in the media. For millions of Americans, of course, it wouldn't be a double-dip recession because they've never emerged from the one that supposedly ended in June 2009.
Whether or not there is an actual retreat into what is officially recognized as a new recession, the fact that the nation is still plagued by continued high unemployment, a weak housing market and reduced consumer spending makes the GDP figure all the more troubling. The potential for conditions worsening is quite high.
With a job deficit of 12.3 million, we should expect sensible leaders at this stage—well before now actually—to be proposing serious plans for digging the nation out of the economic pit it's fallen into. But there just don't seem to be enough of those in Washington. Instead, the tedious and deceitful conversation over the past few weeks has been all about cutting government spending, particularly for social safety net programs. Instead of worrying about the devastating jobs deficit, attention has been focused on the government spending deficit. While the labor market goes up in smoke, Washington fiddles.
As Dean Baker says, it's nonsense:
[T]he battle over the debt ceiling is an elaborate charade that is threatening the country’s most important social welfare programs. There is no real issue of the country’s creditworthiness of its ability to finance its debt and deficits any time in the foreseeable future. Rather, this is about the business community in general, and the finance sector in particular, taking advantage of a crisis that they themselves created to scale back the country’s social welfare system.
That's not all they're doing. At a time when the nation's infrastructure needs, both repairs and innovations, are gigantic, the extremists in Washington seek to make matters worse by refusing to fund projects that could ensure a safer, brighter, more environmentally benign future. Not to mention millions of jobs. But the bumper-sticker these extremists and go-alongs seem to favor is: The American Dream—No Can Do.