Second Quarter Growth, 2009

The Bureau of Economic Analysis has released its latest figures. Interest naturally is focused on the country's second quarter performance. As predicted, U.S. GDP shrank again, for the fourth straight quarter. However, this was not the only data awaited, the big once-every-five years update of the whole statistical base also appearing. According to the BEA's National Economic Accounts the U.S.'s GDP shrank about 1.9 percent during 2008, when measured in chained 2005 dollars-mote than twice the estimate current before this latest recalculation, which had it at 0.8 percent. (Incidentally, the CIA's World Factbook officially lists U.S. GDP as having grown 1.3 percent that year, a very substantial difference.) When the time frame is shifted just one quarter forward, to cover the twelve months between March 2008 and March 2009 (and three quarters of contraction), the U.S. economy appears to have shrunk by about 3.3 percent using the same measure (compared with 2.5 percent in the earlier calculation). Between June 2008 and June 2009, after four full quarters of economic contraction, it shrank by about 3.9 percent, about evenly divided over the two years. In short, things were worse than they said. Of course, bad as this looks, the "conventional wisdom" (I'll say it again: certainly conventional, but so rarely wise) is that we've seen the worst of it, noting that the drop in GDP slowed markedly in the second quarter (the economy contracting at an annual rate of just 1 percent, instead of the 5-6 percent rate of the three previous quarters), and the third quarter of 2009-this one, the one we're actually living in-will end with a return to growth in the U.S. and much of the world. My take: the business press has been too quick to breathe a sigh of relief. As Rex Nutting of Marketwatch reports, consumers-constrained by still rising unemployment (into the double digits) which even optimists do not expect to see come down for a long while, the flat wage growth that goes along with that, and the maxing out of consumer credit-are in no position to generate the kind of demand that will keep real growth going, barring continuous, unsustainable stimulus injections of the kind that quadrupled U.S. Federal debt in the 1930s, and ran Japan deep into the red in the 1990s. (Indeed, the recent data suggests the drop in consumer spending was sharper than earlier recognized.) Quite naturally, Larry Doyle asks "Are We in the Early Stages of a Economic Depression?" Of course, some might argue that we are already there, at least in some countries (Ireland, for instance, according to Ernst & Young), but what he means is the continued, prolonged deepening of the national and global economic contraction. No one wants the answer to be "yes," but taking the question too lightly could make that outcome more likely.