The BEA's second estimate of GDP growth for the second quarter (April - June) fell to 1.6%, from its first estimate of 2.4%. This wasn't as bad as it looks, since most of the downward revision was because businesses didn't replenish their inventory as much as originally thought. Yes, inventory restocking is counted as economic growth, and it is what led to the boost in economic growth in Q4 2009. It is the first sign of recovery, but becomes less important in later stages.
Businesses bought even more equipment and software than originally thought. It contributed 1.5% to growth, higher than last month's initial estimate of 1.3%. This is a huge change from the end of 2009, when business spending subtracted 2.4% from GDP.
Business imports of goods was higher than originally estimated, too - 4.34% vs 3.96%. This is another good sign for the economy. Companies purchase durable goods in the beginning of any recovery as they find they can't afford to make do with old equipment any longer.However, since it's imports, it's deducted from GDP. This is a normal part of the business cycle for an economy coming out of a recession. (Source: Bureau of Economic Analysis, Q2 GDP Report)
For a history of all GDP reports since 2007, see GDP Current Statistics.
What It Means to You
A 1.6% growth rate means the economy is definitely out of recession and not in danger of a double-dip. So, you can safely ignore all those doom-and-gloom claims that the sky is falling. Actually, this type of Chicken Little panic is exactly what usually happens at the end of a downturn in the business cycle. Remember back in October 2007 when the Dow rose to its all-time high of 14,164? The news media was calling for Dow 30,000 - and we were actually starting the Great Recession.
Same thing is happening now - only in reverse. The news media is calling for a double-dip - a good sign we aren't going to have one.
Not to say all will be rosy. A high foreclosure rate is dragging the economy by stifling bank lending. Growth will be anemic - around 2% for several more quarters. This means unemployment will continue to hover between 9-10%, however, since growth needs to be more than 3% for businesses to add jobs.
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Comments
Well, all the data points to a depression in progress. First and foremost the GDP is not an indicator of a recession or depression. In fact, during the 1929 Depression the GDP did recover while the depression continued for 16 years. What a major indicator is the economic health of the majority of the population. The availability of employment and decent wages. This disables education as a long term investment since there is not a way to pay back tuition costs and to get a reasonable pay back on that investment. But to take it one step further the investments and holdings of the general population. These are home values, pensions and savings. Home values the single biggest investment of the US citizen is depreciating at an alarming rate. Pensions a cross the country are in jeopardy of defaulting. Every way a person can make money has been eliminated. There is no chance for prosperity. While the holdings of the population are in decline, large multinational corporations
hold over one Trillion dollars in cash and are unwilling to invest it. The general population with nothing and big corporations with everything. Low and behold a long term depression. If the
the economy was in recovery, it would have recovered with the stimulus money. It has proven to be unrecoverable at this point in time.