U.S. Economy Shrank Less Than Expected in Quarter
The government reading on U.S. gross domestic product released Friday was better than economists expected.
By CATHERINE RAMPELL and JACK HEALY
Published: July 31, 2009
The economy’s long, churning decline leveled off significantly from April through June, the government reported on Friday, supporting hopes that the economy would turn around in the second half of the year.
The American economy shrank at an annual pace of 1 percent in the second quarter, after contracting at an annual pace of 6.4 percent earlier this year. Government spending, bolstered by the first payouts from a $787 billion stimulus package, propped up the economy and accounted for 20 percent of the country’s output.
But consumer spending, which makes up about 70 percent of the overall economy, has continued to fall as fearful Americans hold onto their paychecks and whittle down their spending. This has led to concerns about what will happen once stimulus funds peter out.
“The most severe part of the decline is behind us,” said Joshua Shapiro, chief United States economist at MFR. “But it’s hard to say how sustainable whatever bounce we might see will be. It depends largely on whether the consumer has the genuine ability to spend, or if it’s all just government cheese being handed out.”
The increasing reliance on the government to fuel the economy — and the decreasing contributions from consumers — could put the Obama administration and other Democrats in a difficult position. Many economists say that even if the economy has bottomed, the recovery over the coming months or possibly years many be painfully slow.
“We’re going from recession to recovery, but at least early on, it’s not going to feel like one,” said the chief economist at Moody’s Economy.com, Mark Zandi. “For economists, this is a seminal part in the business cycle, but for most Americans, it won’t mean much.”
Bright spots have been seen in stock markets, corporate profits, some housing markets and the pace of job losses. But generally the job market tends to follow the rest of the economy, as employers wait to hire more workers until their businesses strengthen. This means the threat of sustained, double-digit employment in coming months remains.
As long as employers keep slashing jobs, and consumers continue to hurt, pressure may mount on government officials to speed up the recovery.
“At some point it becomes Obama’s economy, not Bush’s economy anymore,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal research group in Washington. “He made a big mistake in overselling the first stimulus, and then in celebrating all the ‘green shoots.’ That just opens the door for people to say, ‘Where are my green shoots? I still don’t have a job.’ ”
Unemployment climbed to 9.5 percent in June, leaving a total of 15 million people out of work and looking for jobs. Consumers, wary of losing their jobs or already unemployed, cut their spending by 1.2 percent in the second quarter and saved more than 5 percent of their disposable income, a stark turnaround from their spendthrift behavior during the housing boom.
“Concerns about a possible ‘double-dip’ recession probably would focus mainly on the consumer,” said Nigel Gault, chief United States economist at IHS Global Insight. “If households continue to try to bump up their savings rate, any growth we get in the overall economy could certainly relapse.”
Friday’s report on gross domestic product — a broad gauge of the country’s output — painted a bleaker picture of the recession than earlier estimates had.
The Commerce Department said the economy tumbled downward by 6.4 percent this winter as the country reeled from the shocks of the financial crisis, and it said the economy grew only 0.4 percent in all of 2008, compared to earlier assessments of 1.1 percent growth.
Now, even with jobs still vanishing and wages flat, many forecasters expect the downturn to level off. Economists say that businesses from small manufacturers to big automakers are poised to rebuild their depleted inventories, which fell by an annualized $141 billion in the second quarter. That restocking could spur economic growth later this year.
The Commerce Department’s quarterly assessment offered a tour through a dreary year. The economy withered during each of the last four quarters, its longest contraction since the 1940s. Businesses cut their investments and laid off millions of workers. Imports and exports tumbled.
The country’s gross domestic product fell to $14.15 trillion in the second quarter, from $14.5 trillion in the second quarter of 2008.
In interviews, small-business owners across the country say the ground is slowly reforming under their feet, and that business no longer seems to be careening downward. Indeed, business investment in structures like new factories and office buildings fell at a rate of 8.9 percent in the second quarter after declining by more than 40 percent in the previous three months. And investment in equipment and software, which fell 36 percent this winter, dropped a more modest 9 percent in the second quarter.
But many employers who have laid off employees or scaled back say they are not about to increase their spending or start hiring.
In Nashville, Jerry Robertson laid off one of his 15 employees, cut his budget for advertising and trade shows and moved into a smaller office space to cut costs at his company, which helps trucking companies manage their operations. His business is down about 10 percent from last year, and clients are still falling off his books.
“We do see it not declining as fast as it was, but we don’t see any growth,” Mr. Robertson said. “We’re still going down.”
http://www.nytimes.com/2009/08/01/business/economy/01econ.html?_r=1&hp
The government reading on U.S. gross domestic product released Friday was better than economists expected.
By CATHERINE RAMPELL and JACK HEALY
Published: July 31, 2009
The economy’s long, churning decline leveled off significantly from April through June, the government reported on Friday, supporting hopes that the economy would turn around in the second half of the year.
The American economy shrank at an annual pace of 1 percent in the second quarter, after contracting at an annual pace of 6.4 percent earlier this year. Government spending, bolstered by the first payouts from a $787 billion stimulus package, propped up the economy and accounted for 20 percent of the country’s output.
But consumer spending, which makes up about 70 percent of the overall economy, has continued to fall as fearful Americans hold onto their paychecks and whittle down their spending. This has led to concerns about what will happen once stimulus funds peter out.
“The most severe part of the decline is behind us,” said Joshua Shapiro, chief United States economist at MFR. “But it’s hard to say how sustainable whatever bounce we might see will be. It depends largely on whether the consumer has the genuine ability to spend, or if it’s all just government cheese being handed out.”
The increasing reliance on the government to fuel the economy — and the decreasing contributions from consumers — could put the Obama administration and other Democrats in a difficult position. Many economists say that even if the economy has bottomed, the recovery over the coming months or possibly years many be painfully slow.
“We’re going from recession to recovery, but at least early on, it’s not going to feel like one,” said the chief economist at Moody’s Economy.com, Mark Zandi. “For economists, this is a seminal part in the business cycle, but for most Americans, it won’t mean much.”
Bright spots have been seen in stock markets, corporate profits, some housing markets and the pace of job losses. But generally the job market tends to follow the rest of the economy, as employers wait to hire more workers until their businesses strengthen. This means the threat of sustained, double-digit employment in coming months remains.
As long as employers keep slashing jobs, and consumers continue to hurt, pressure may mount on government officials to speed up the recovery.
“At some point it becomes Obama’s economy, not Bush’s economy anymore,” said Dean Baker, co-director of the Center for Economic and Policy Research, a liberal research group in Washington. “He made a big mistake in overselling the first stimulus, and then in celebrating all the ‘green shoots.’ That just opens the door for people to say, ‘Where are my green shoots? I still don’t have a job.’ ”
Unemployment climbed to 9.5 percent in June, leaving a total of 15 million people out of work and looking for jobs. Consumers, wary of losing their jobs or already unemployed, cut their spending by 1.2 percent in the second quarter and saved more than 5 percent of their disposable income, a stark turnaround from their spendthrift behavior during the housing boom.
“Concerns about a possible ‘double-dip’ recession probably would focus mainly on the consumer,” said Nigel Gault, chief United States economist at IHS Global Insight. “If households continue to try to bump up their savings rate, any growth we get in the overall economy could certainly relapse.”
Friday’s report on gross domestic product — a broad gauge of the country’s output — painted a bleaker picture of the recession than earlier estimates had.
The Commerce Department said the economy tumbled downward by 6.4 percent this winter as the country reeled from the shocks of the financial crisis, and it said the economy grew only 0.4 percent in all of 2008, compared to earlier assessments of 1.1 percent growth.
Now, even with jobs still vanishing and wages flat, many forecasters expect the downturn to level off. Economists say that businesses from small manufacturers to big automakers are poised to rebuild their depleted inventories, which fell by an annualized $141 billion in the second quarter. That restocking could spur economic growth later this year.
The Commerce Department’s quarterly assessment offered a tour through a dreary year. The economy withered during each of the last four quarters, its longest contraction since the 1940s. Businesses cut their investments and laid off millions of workers. Imports and exports tumbled.
The country’s gross domestic product fell to $14.15 trillion in the second quarter, from $14.5 trillion in the second quarter of 2008.
In interviews, small-business owners across the country say the ground is slowly reforming under their feet, and that business no longer seems to be careening downward. Indeed, business investment in structures like new factories and office buildings fell at a rate of 8.9 percent in the second quarter after declining by more than 40 percent in the previous three months. And investment in equipment and software, which fell 36 percent this winter, dropped a more modest 9 percent in the second quarter.
But many employers who have laid off employees or scaled back say they are not about to increase their spending or start hiring.
In Nashville, Jerry Robertson laid off one of his 15 employees, cut his budget for advertising and trade shows and moved into a smaller office space to cut costs at his company, which helps trucking companies manage their operations. His business is down about 10 percent from last year, and clients are still falling off his books.
“We do see it not declining as fast as it was, but we don’t see any growth,” Mr. Robertson said. “We’re still going down.”
http://www.nytimes.com/2009/08/01/business/economy/01econ.html?_r=1&hp
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