Discussion: (90 comments)
Comments are closed.
The public policy blog of the American Enterprise Institute
GDP growth for the second quarter was revised down to 1.25%. Here is Reuters:
Economic growth was much weaker than previously estimated in the second quarter as a drought cut into inventories, setting the platform for an even more sluggish performance in the current quarter against the backdrop of slowing factory activity.
Gross domestic product expanded at a 1.3 percent annual rate, the slowest pace since the third quarter of 2011 and down from last month’s 1.7 percent estimate, the Commerce Department said in its final estimate on Thursday.
Output was also revised down to reflect weaker rates of consumer and business spending than previously estimated. Outlays on residential construction export growth were also not as robust as had been previously estimated.
Data in hand for the third-quarter suggest little improvement in the growth pace, even as the housing market digs out of a six-year slump. Manufacturing, the pillar of the recovery from the 2007-09 recession is cooling, hurt by fears of tighter U.S. fiscal policy in January and slower global demand.
U.S. economic growth is dangerously slow. I’ve frequently written about research from the Fed which finds that since 1947, when two-quarter annualized real GDP growth falls below 2%, recession follows within a year 48% of the time. And when year-over-year real GDP growth falls below 2%, recession follows within a year 70% of the time.
Citigroup has also taken a shot at determining the stall speed: “Specifically, when U.S. growth has cut below 1½ percent on a rolling four-quarter basis, it has tended to fall by nearly 3 percentage points over the following four quarters, and the economy has typically entered recession.
Bottom line: Growth the past two quarters has averaged about 1.6%. Not only does this mean the economy is growing more slowly than last year’s 1.8%, it is also slow enough to signal about a 50% chance of a recession within a year. And the third quarter also looks weak.
The anemic, three-year-old U.S. recovery is already running out of steam. And if it does, it may be several more years before we see unemployment below 8%.
UPDATE: Here is RDQ Economics:
The only good thing in this GDP revision was an upward restatement of second-quarter economy-wide economic profits. However, the income estimate of real GDP advanced by only 0.2% at an annual rate in the second quarter (2.0% over the last year), while the expenditure estimate in the second quarter is only 1.3% (2.1% over the last year). Nominal GDP growth in the quarter is now a paltry 2.8% (3.9% over the last year).
This restatement of second-quarter activity will provide ammunition for those at the Fed who want to do more—especially those who subscribe to the view that there is a stall speed for the U.S. economy somewhere below 2% where the economy is in danger of falling into recession. Normally we would not ascribe to such a view but with the economy growing so slowly, the fiscal cliff looming, and Washington in campaigning mode, there is growing risk that a 2013 tax shock could push the economy into recession (and there is little the Fed can do to offset the fiscal shock).
Comments are closed.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research