Wikinvest Wire

The changing face of our economy

Friday, July 31, 2009

The "advance" estimate for U.S. economic growth in the second quarter (the first of three estimates), came in at an annual rate of -1.0 percent, slightly worse than expected, but just look at how the contributions to growth (or the lack of it) have changed recently.
IMAGE Government spending had its biggest quarter since 2003, and that's before a good portion of the stimulus money is disbursed, while net exports continue to benefit from a weaker dollar and fewer imports required by a suddenly more frugal consumer sector.

Hanging below the zero-axis in the graphic above are personal spending and private domestic investment, the former dipping back into negative territory after a brief respite in the first quarter, the latter recovering from a horrific first quarter that saw a drop of 39.2 percent that led to a negative nine percentage point contribution to the 6.4 percent annual rate of decline.

The first quarter marked the sharpest quarterly slowdown for the U.S. economy since 1982.

Economic growth has now contracted for four straight quarters, the longest stretch since the government began keeping records more than 60 years ago and, aside from rising stock prices, it's hard to see what will drive the economy forward in the period ahead.

Note that during the 2001 recession, personal spending did not decline during a single quarter and, after the bursting of the internet bubble produced a sharp decline in equipment and software spending (i.e., a component of private domestic investment), homebuilding quickly buffeted that category until it again reached a peak when the housing bubble was fully inflated a few years later.

This time around, there is no clear source of new growth (well, aside from the government).

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Anonymous said...

This does not bode well for future growth. Decreasing economic activity has usually always been preceded by a decline in investment activity - at least as far as economic history is concerned.

Anthony Alfidi said...

Good news: Net exports are up.

Anonymous said...

Future seems obvious: The drivers of economy will be exports and government spending. The days of happy, fat, rich American consumer driving PCE & domestic investment are over for a long time.

Anonymous said...

Government spending is like the pig that eats itself to death. It won't end until it get cut off by either a currency crisis and or t-bond crisis. That is coming soon enough.


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