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Thursday, July 31, 2008

Economy Gains in Q2

The economy gained in the 2nd quarter of this year (Apr 1- Jun 30) according to numbers released this morning.

Economic growth picked up in the second quarter as tax rebates energized consumers. The rebound followed a treacherous patch where the economy jolted into reverse at the end of 2007.

The Commerce Department reported Thursday that gross domestic product, or GDP, increased at an annual rate of 1.9 percent in the April-to-June period. That marked an improvement over the feeble 0.9 percent growth logged in the first quarter of this year and an outright contraction in the economy during the final quarter of last year.

Still, the second-quarter rebound wasn't as robust as economists had hoped; they were forecasting growth to clock in at a 2.4 percent pace. The rebound, while welcome, isn't likely to be seen as a signal that the fragile economy is out of the woods. There are fears that as the bracing tonic of the tax rebates fades, the economy could be in for another rough patch later this year.

There is a lot to analyze in these numbers. First, I have never worried much about what so called experts predict the numbers to be. They are so expert that they rarely actually get the number right.

That said, while 1.9% growth in GDP can seem positive, there is still a lot to be concerned about. If it was driven mainly by the stimulus checks, that is unsustained growth. Normally, you are always looking for growth to be in the neighborhood of 3% quarterly. Given the weakness in the economy, that was of course impossible. Still, this growth is rather mild. If it was driven mainly by the stimulus checks it is temporary. As such, the numbers for the third quarter will be even more important. Stay tuned.


Anonymous said...

I have my own business, selling a very boring product to other businesses across the country, and I will tell you right now -- the US economy is fine. I see no hestiation on my customers' part. The "recession" is a media myth. I see it as based primarily on how badly the media is doing AND on the desire to elect Obama president. A lot of industries are doing just fine. Residential real estate is hurting, but that helps the economy in the medium-run. Housing prices needed to come down. Financial firms are hurting, but not nearly as much as their headlines indicate. I think a lot of the bad headlines reflect the "mark to market" requirements. Most banks are doing just fine.

mike volpe said...

Well, I am in real estate an to say we are hurting is a euphimism. We are getting crushed. Banks and financial services companies aren't struggling they are getting destroyed. Merrill is on the brink of going down.

Look, of course, not all industries are hurt. Some are probably thriving, but don't sugar coat an economy that has seen a major sector get destroyed, unemployment shoot up, and GDP be nearly flat. These are NOT the numbers of an economy that is "fine".