US GDP contraction slows to 1%

[mendeleev 68]

The Financial Times is probably the preeminent global daily newspaper on economic issues. The article below describes the slowing of the current recession, now the longest on record, and gives credit to Obama's fiscal stimulus and efforts of the Fed. The recovery is beginning, but it will be slow and painful. But its frightening to imagine where we'd be without those interventions. It would probably be worse than in 1930. Article follows.

US GDP contraction slows to 1%

The US economy continued to shrink in the second quarter, but the pace of contraction slowed as aggressive government spending started to loosen the grip of the longest recession on record.

US gross domestic product declined by an annualised rate of 1 per cent in the second quarter after plunging by a revised 6.4 per cent during the first three months of the year, according to official figures released on Friday..

While the contraction was much smaller than in the previous three quarters and slightly better than economists had expected, the data showed that the government stimulus and a slowdown in imports had cushioned the drop.

Consumer spending, which represents about two-thirds of GDP and has traditionally been the engine of US growth, fell a much worse-than-expected 1.2 per cent as Americans continued to cut back in the face of rising unemployment and the falling value of their homes and investments.

President Barack Obama said he was “guardedly optimistic” about the numbers, but added: “I realise that none of this is much comfort to those Americans that are still out of work and struggling to make ends meet.”

The US Federal Reserve expects the economy to start growing again by the end of the year but thinks the unemployment rate – currently at 9.5 per cent – will remain high for years.

“As far as I’m concerned we won’t have a recovery as long as we stop losing jobs, and I will not rest until every American who wants a job can find one,” Mr Obama said.

But economists took heart from the figures. “This is how economies turn. At first you’re hit by a car, you get all kinds of broken bones so they put you in a cast. You take the cast off, but you’re still all black and blue,” said Marc Chandler, analyst at Brown Brothers Harriman.

“We’re still in very bad shape, but we’re healing.”

Federal spending grew by 10.9 per cent compared with a drop of 4.3 per cent in the previous quarter, as the government’s $787bn (€550bn, £470bn) fiscal stimulus package filtered into the economy. Christina Romer, chairman of Mr Obama’s council of economic advisers, said the stimulus had probably added between 2 and 3 percentage points to GDP.

“So that gives you a sense of just how much worse this would have been, had it not been for the [stimulus bill] and, of course, all the others things that we and the Federal Reserve have done to try and rescue this economy,” she said.

Rapidly falling business inventories knocked 0.8 percentage points from GDP as companies shed a huge $141.1bn in stock, following a $113.9bn drop in the first quarter. But economists think this is a positive sign for future growth: as demand picks up, it should necessitate immediate production of new goods, which could spur longer hours for factory workers or even new hiring.

“This is a spring that is very tightly coiled,” said Joseph LaVorgna, chief US economist at Deutsche Bank. “There’s no question the economy’s recovering and things are looking up.”

Slashing of business investment has also started to moderate, from a near- 40 per cent drop in the first quarter to an 8.9 per cent decrease in the second.

The collapse of trade also eased, although imports continue to fall faster than exports. Imports fell by 15.1 per cent after plunging by 36.4 per cent in the first quarter, while exports were down by 7 per cent compared with a 29.9 per cent drop in the first three months of the year.

On Friday, the International Monetary Fund released its annual report on the state of the US economy. It predicted GDP would rise by a tepid 0.8 per cent next year.

“As a result of their increasingly strong and comprehensive policy measures, the sharp fall in economic output seems to be ending, and confidence in financial stability has strengthened,” the report said. “Nevertheless, with financial strains still elevated, the recovery is likely to be gradual, and risks are tilted to the downside.”

Source

Edited August 2, 2009 by novotul

[mendeleev 68]

The Chinese economy has already returned to strong growth, mainly due to the large stimulus provided by the Chinese government to domestic demand. Last year, the Chinese implemented a $590 stimulus, amounting to about 14% of their GDP.

By contrast, Obama's modest stimulus is only 6.2% of US GDP.

It will take us longer to recovery from this recession than the Chinese, partly due to an insufficiently large stimulus from the government.

The fact that the crisis originated here, caused in large part by irresponsible banks and irrespondible Republican oversight of them, has caused our economy more harm than the Chinese experienced.

[Yoink 7]

What recession? Since the March 9 market low I have bought a new home, car, flat-screen TV, computer... I am doing my part for recovery

[Ban Hammer 13,340]

What recession? Since the March 9 market low I have bought a new home, car, flat-screen TV, computer... I am doing my part for recovery

i've been slacking, i'm too busy working for everyone else's health care.

[peejay 327]

The Chinese economy has already returned to strong growth, mainly due to the large stimulus provided by the Chinese government to domestic demand. Last year, the Chinese implemented a $590 stimulus, amounting to about 14% of their GDP.

By contrast, Obama's modest stimulus is only 6.2% of US GDP.

It will take us longer to recovery from this recession than the Chinese, partly due to an insufficiently large stimulus from the government.

The fact that the crisis originated here, caused in large part by irresponsible banks and irrespondible Republican oversight of them, has caused our economy more harm than the Chinese experienced.

And the Chinese are flush with cash from their exports. The USA is drowning in debt.

As far as the assertion that Republicans are the sole cause of our woes...I'd say this crash was a long time coming and there is a lot of blame to go around. Obama and the Dems will be adding their malfeasance to the mix in due time. As the majority party all the bribes and corruption are theirs' for the taking. And in due time the American people will sour on their "change".

[mawilson 2,133]

And the Chinese are flush with cash from their exports.

Are you kidding? Their exports are down 30% year on year.

The only reason they claim to be "up 6-8%" is the injection of a huge amount of

liquidity into the financial system - in effect, repeating Greenspan's mistakes

after the dot-com crash.

[mRx 16]

GDP is such an easily manipulated figure; I'm not sure why it's even paid any attention.

[mawilson 2,133]

GDP is such an easily manipulated figure; I'm not sure why it's even paid any attention.

And our own GDP contraction slows... to 1%? Seriously, does anyone believe that?

Can you name one industry - one!!! - that hasn't contracted by more than 10% year on year?

P.S. Edited to add: "except the government"

Edited August 2, 2009 by mawilson

[mRx 16]

Yup.

If the government prints $100 billion, and pays it to people to "dig a hole and then fill it"--this is considered a $100 billion addition to our GDP, and therefore our economic prosperity!

[mendeleev 68]

Germany's two stimulus packages, put together, amount to only 3.2% of GDP, but is relatively the largest in the EU. Economics are saying that the EU will pull out of the recession after North America.

Amongst the biggest economies, the magnitude of stimulus, relative to GDP, is China > USA > EU.

There is a very interesting economic experiment going on right now. The whole world plunged into recession more or less simultaneously. Different governments responded differently. It appears that rapidly of exiting the recession is a function of the vigor of government stimulus put in place during Q4 08 and Q1 09.

Edited August 2, 2009 by novotul

[GaryC 7]

Germany's two stimulus packages, put together, amount to only 3.2% of GDP, but is relatively the largest in the EU. Economics are saying that the EU will pull out of the recession after North America.

Amongst the biggest economies, the magnitude of stimulus, relative to GDP, is China > USA > EU.

There is a very interesting economic experiment going on right now. The whole world plunged into recession more or less simultaneously. Different governments responded differently. It appears that rapidly of exiting the recession is a function of the vigor of government stimulus put in place during Q4 08 and Q1 09.

My question is this, what will happen when the effects of all the deficit spending kicks in? Inflation would seem to be the logical outcome.

[mawilson 2,133]

It appears that rapidly of exiting the recession is a function of the vigor of government stimulus put in place during Q4 08 and Q1 09.

It's really not, it's just cyclical economics.

The whole world did not plunge into recession simultaneously. The US was first, followed by the EU and

the developing countries (including China) - as a result of the credit crunch and reduced consumption.

It stands to reason that the US will be the first to come out, followed by the EU and the developing world.

China's "growth" numbers are BS - I don't believe them for a second. It's fueled by a loose monetary

policy and is every bit as artificial as the "growth" we experienced in 2003-2007.

[mawilson 2,133]

My question is this, what will happen when the effects of all the deficit spending kicks in? Inflation would seem to be the logical outcome.

So far we haven't seen any significant inflation because the banks have not had any extra money to lend.

All that bailout cash (which was not cash at all, but government debt) went straight into their balance sheets.

[mendeleev 68]

It appears that rapidly of exiting the recession is a function of the vigor of government stimulus put in place during Q4 08 and Q1 09.

It's really not, it's just cyclical economics.

The whole world did not plunge into recession simultaneously. The US was first, followed by the EU and

the developing countries (including China) - as a result of the credit crunch and reduced consumption.

It stands to reason that the US will be the first to come out, followed by the EU and the developing world.

China's "growth" numbers are BS - I don't believe them for a second. It's fueled by a loose monetary

policy and is every bit as artificial as the "growth" we experienced in 2003-2007.

China, Korea, and Singapore have all emerged from the recession. Each had quite strong stimulatory policies.

[mendeleev 68]

Q2 grown in South Korea was almost 10%, Singapore soared by 20%, and while China doesn't published quarterly figures, economists think its GDP jumped by an annualised 15-17%. The source is the August 1st issue of The Economist