Second Quarter 2010 U.S. GDP

This morning the U.S. Commerce Department stated that the U.S. economy grew 2.4% in the second quarter.  That compares to an expected growth of 2.5%.  The 2.4% growth compares to an upwardly revised first quarter GDP growth of 3.7% – so the economy’s growth is slowing.  Additionally, the Commerce Department also revised down GDP figures dating back to 2007.

Analysis: As most of you probably know, I am not in the business of making specific numerical estimates about economic data.  However, I do pride myself on getting the direction of data correct, as well as the tenor.  I consider these GDP figures to have been expected.  It was obvious has the consumer confidence and consumer spending figures for the second quarter rolled in that GDP was going to be weaker than it had been in the first quarter.

I have written at length on the blog about the nervous and grumpy U.S. consumer.  I have also written at length about the fact that the unemployment rate will remain stubbornly high for a long time.  This is because not only do lost jobs have to be made up for by the U.S. economy, but also that the population looking for jobs grows each and every month just from regular population growth.

The U.S. consumer is shell-shocked and fully at their capacity to absorb bad news.  That’s why the European debt crisis was so affecting in May and why it so strongly affected U.S. GDP figures.

I have also written about the need for the U.S. government to stop focusing on stuff that is not truly important, like health care reform, and to instead focus on helping the economy create jobs.

So how do I feel about the second quarter GDP figure?  I feel that the U.S. is teetering on the brink, either of continued slow and difficult expansion, or of another recession.  The expansion will happen with no, or very limited shocks, to the U.S. consumer and with attention from policy makers focused on job creation.  The second recession will happen if neither of these first two conditions is met.  It’s a fragile time right now, one requiring care and concern on the part of policy makers.  That’s because shocks can only be managed pro-actively after they occur, whereas policy can be made proactively at any time.

The good news is that even in the face of a major economic shock – the European debt crisis – that affected 2 of the 3 months of the second quarter, the economy still managed to grow.  That means that there is some robustness to U.S. businesses.  Now if they could only find a way to grow enough that they feel the need to hire folks.

Importance grade: 10; this is the aggregate economic statistic; the result of the U.S. economy stepping onto the scale and getting weighed.  The scale says that the economy is weaker than it was three months ago.

Jason