No big surprise this morning with the release of the "first revision" of the Commerce Department's estimate of annualized growth in gross domestic product for the second quarter of 2010: 1.6 percent. The expert consensus had expected slightly worse. In July, the GDP had been calculated at a disappointing 2.4 percent though one observer labeled it a "decent report." The revision today showing reduced momentum was based on weaker numbers than previously estimated - "a sharp acceleration in imports and a sharp deceleration in private inventory investment." A second revision comes at this time next month.
Announcement of the revision followed a week of mostly discouraging economic news, with the only modest bright spot being a decline in initial jobless claims from the half-million filed last Thursday. But at 473,000, those initial claims still fell into the high end of the up-and-down range they've been stuck in over the past nine months. Housing sales, durable goods orders, and reports on manufacturing from branch banks of the Federal Reserve all indicated a weakening of the expansion that began in mid-2009.
Two months ago, the Federal Reserve revised downward its GDP estimates for the year to 3.0-3.2 percent. That range now looks hopelessly optimistic. If the revision holds, a dicey proposition, annualized growth in GDP for the first two quarters was 2.65 percent.
Compared with the two previous recessions, that might not at first glance seem so bad. The mean GDP growth for the four quarters after the bottoming of the 1991 recession was 2.63 percent. For the recession of 2001, it was 1.93%. And for 2007: 2.98 percent. But while things look somewhat better this time, it should not be forgotten that those two previous recessions were labeled "jobless" for a reason. And in those two, the unemployment numbers didn't descend to anywhere near the depths we've seen this time.
Although the expert consensus predicts third-quarter GDP at around 1.7 percent, that also appears optimistic to some analysts. Nouriel "Dr. Doom" Roubini, one of the few who predicted the recession that began in 2007, is now one of a few predicting that GDP growth for the third quarter may clock in close to zero percent. That might be the case for the 4th quarter, too. And Roubini has raised his estimate for the chances of a "double-dip" recession to 40 percent.
About that, Paul Krugman writes:
Will the economy actually enter a double dip, with G.D.P. shrinking? Who cares? If unemployment rises for the rest of this year, which seems likely, it won’t matter whether the G.D.P. numbers are slightly positive or slightly negative.
Uncertainty remains the watchword because statistics measuring various aspects of the economy have not all trended in the same direction month after month. There's no doubt, however, that the burst of growth which began in the 4th quarter of 2009 has slowed significantly and seems likely to slow more. That's ominous this early in a "recovery." GDP growth below 2.5 percent will not reduce unemployment. We may well be in for what New Deal democrat calls a "slow motion bust," a state of affairs in which there is modest expansion or stagnant growth while the underlying problems - such as banks' toxic debt load and too much housing inventory - work themselves out, if they do.
The pre-election political climate for doing anything to improve this situation is toxic. Despite no signs of inflation, austerity hawks and deficit peacocks seek cutbacks in government spending at the very time when doing so is guaranteed to worsen matters. Flawed as it was, the stimulus package that passed 18 months ago, as the Congressional Budget Office reported earlier this week, kept the GDP out of the red in the 2nd quarter and kept millions at work who would otherwise have been jobless. But the effect of the stimulus on GDP and job growth will fade sharply toward year's end. The White House ought to propose a modernized WPA - say, a Green WPA - a program that fits President Obama's clean-energy agenda. But, even though it should be proposed because it's all-around smart, especially with China planning to spend $738 billion on renewable energy over the next decade, there's next to nil chance of getting such a program through Congress this year.
Therefore, all hopes for cutting unemployment now depend on private-sector hiring. And that's also ominous. While the private sector has added 664,000 jobs so far in 2010, 71,000 of them in July, that's nowhere near enough. And little evidence exists to assume that next Friday's monthly jobs report will show an acceleration of such hiring.
Is the situation just temporary? Or is the acute pain of unemployment and underemployment afflicting tens of millions of us going to add itself to the list of other chronic problems plaguing the economy? If the latter is the case, do we just continue stumbling along or do we build political forces to create a new paradigm in which economic well-being is not dependent on jobs as we have known them? And if so, how do we go about building those forces in the face of the ultra-concentration of wealth and the political power it confers?
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