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Thursday, August 28, 2008

Second Quarters Numbers Very Strong

The The Bureau of Economic Analysis released their latest economic data and it shows a very strong economy.

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.9 percent in the second quarter of 2008 (that is, from the first quarter to the second quarter), according to advance estimates released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 0.9 percent.
….

The increase in real GDP in the second quarter primarily reflected positive contributions fromexports, personal consumption expenditures (PCE), nonresidential structures, federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, residential fixed investment, and equipment and software. Imports, which are a subtraction in the calculation of GDP, decreased.

The acceleration in real GDP growth in the second quarter primarily reflected a larger decrease inimports, an acceleration in exports, a smaller decrease in residential fixed investment, and anacceleration in PCE that were partly offset by a larger decrease in inventory investment.


There is a great deal of irony here. First, this comes only two days after I speculated about stagflation. Second, it comes after the Democrats spent three days making our economy look as though we were living in Zimbabwe . Clearly these numbers undercut that attack. In fact, all Democrats criticize John McCain for saying that the economic is fundamentally strong. Well, given all that they claim is wrong with the economy, the fact that the economy still grew at such a brisk pace shows that in fact McCain has a point.

Still, there is still plenty to be concerned about when analyzing these numbers. Much of the growth of the GDP had to do with weakening imports and strengthening exports. Of course, this is entirely due to both a weak dollar and a weakening global economy. That dynamic is not the blue print for sustained growth. The housing market continues to be extremely weak and I don't believe we will see any sustained growth until the housing market is stabilized. While these numbers are excellent, I firmly believe the economy is a long way from being out of the woods.

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