The Commerce Department's third estimate of annualized growth in gross domestic product for the second quarter clocked in at 1.7 percent today, slightly above consensus expectations, and better than the 1.6 percent of the second estimate. But it was well below the level needed to make a dent in unemployment. Meanwhile, initial claims for unemployment compensation fell to 453,000, below consensus expectations, but still within the range where it has hovered since December. The four-week running average of initial claims, which evens out volatility, also fell. Taken together with other news this week, prospects for a slow-growing economy for the rest of 2010 and, quite probably, well into 2011, remain unchanged.
Shobhana Chandra at Bloomberg reported:
"We have a slow-growing economy,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. “What we’re getting will do nothing to bring down the unemployment rate. The improvement in the labor market is very slow.”
Consumer spending in the second quarter was revised from the 2 percent annualized growth rate calculated in the second estimate to 2.2 percent, the largest increase in three years. Consumer spending grew at a 1.9 percent rate in first quarter. Imports rose 33.5 percent instead of the 32.4 percent increase previously reported. That growth in imports was the strongest since 1984, and vastly stronger than the 9.1 percent rise in exports. Analysts said that the trade deficit created by this gap knocked 3.5 percent off GDP growth.
Over the past three months, even among optimistic observers, the view has grown that the second half of 2010 will show modest growth in GDP and only modest job expansion. Earlier in the year, some analysts went so far as to estimate GDP growth as high as 5 percent for the year. Nobody is doing that now.
Reports from several of the Federal Reserve's branch banks in the past two weeks - Dallas being an exception - have shown a slowing of the regional growth rate. Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis, and an optimist, said Wednesday:
I’ll talk first about GDP. Real GDP growth has been positive in each of the past four quarters, and the government’s second estimate is 1.6 percent for the second quarter of this year. We have recently updated our estimates for future growth from our Minneapolis forecasting model. Our September estimates are distinctly lower than our August estimates. I now expect GDP growth to be around 2.4 percent in the second half of 2010 and around 2.5 percent in 2011. Together over 2010 and 2011, I’m now predicting that GDP will grow around 2.5 percent per year. In contrast, in my first speech about seven months ago, I predicted that GDP would grow around 3.0 percent per year over 2010 and 2011. There is a recovery under way in the United States. But it is a distinctly modest one—and even more modest than I expected at the beginning of this year.
Other analysts believe that a 2.4 percent prediction isn't modest enough.
Rank-and-file Americans also have downgraded their view of short-term prospects for the economy. The Conference Board reported that its consumer confidence index dropped by 4.7 percent:
Says Lynn Franco, Director of The Conference Board Consumer Research Center: “September’s pull-back in confidence was due to less favorable business and labor market conditions, coupled with a more pessimistic short-term outlook. Overall, consumers’ confidence in the state of the economy remains quite grim. And, with so few expecting conditions to improve in the near term, the pace of economic growth is not likely to pick up in the coming months.”
Consumers’ assessment of current conditions weakened further in September. Those saying business conditions are “bad” increased to 46.1 percent from 42.3 percent, while those claiming business conditions are “good” declined to 8.1 percent from 8.4 percent. Consumers’ appraisal of the labor market was also less favorable. Those claiming jobs are “hard to get” rose to 46.1 percent from 45.5 percent, while those stating jobs are “plentiful” decreased to 3.8 percent from 4.0 percent.
Despite that sentiment, retail sales are climbing and retailers have indicated they will do more temporary hiring than in the past two holiday seasons, although still nowhere near pre-recession levels.
A week from tomorrow, what may be the most important economic news to hit before the election - the September jobs report - will be released. As in the past few months, the increase in private-sector employment growth will be the number to look at. So far, the number of new jobs generated in the first eight months of 2010 has not equaled the number lost in one month - January - of 2009.