GDP Revised Down to 1.6% for Q2

The U.S. economy grew at a tepid 1.6% annualized real rate in this year’s second quarter, the government reported today. That’s down from the earlier estimate of 2.4% growth. The revised 1.6% rise is slightly higher than consensus forecast among economists, but there’s no getting around this uncomfortable fact: the economy slowed dramatically in Q2, falling to a 1.6% pace from 3.7% in Q1.

Some growth is better than no growth, of course, but today’s update is sure to keep the debate going about whether the economy will continue to slow, perhaps to the point of falling into a new recession. By some accounts, the distinction no longer matters. “This is not a recovery,” Paul Krugman writes today. Maybe not, but whatever you call the current state of the economy, it could get worse.

Or better? Not likely, at least not anytime soon. But let’s also recognize that there was some good news in today’s GDP revision, or at least better-than-expected news. That includes the numbers on consumer spending. Personal consumption expenditures rose 2.0% in Q2, slightly higher than the 1.9% rate in Q1. The broad trend in consumption, in other words, is generally holding steady. That’s not a bad thing for a sector of the economy that represents more than 70% of GDP.

But the challenge is tied up with expectations for growth in consumption over the next several years. The probability that consumer spending will remain slow, if not dip a bit, can’t be written off as unlikely.

“The economy has slowed a bit and will probably continue to slow through the second half,” John Silvia, chief economist at Wells Fargo Securities, told Bloomberg News today. “We’re skating on thin ice, and we don’t have a lot of margin for error.”

The question before the house: Will the various macroeconomic weights on our collective backs break the ice, or allow us to skate tentatively forward until stronger recovery winds begin to blow? No one really knows the answer, but it’s getting harder to give the latter anything more than a 50% chance, if that.

About James Picerno 894 Articles

James Picerno is a financial journalist who has been writing about finance and investment theory for more than twenty years. He writes for trade magazines read by financial professionals and financial advisers.

Over the years, he’s written for the Wall Street Journal, Barron’s, Bloomberg, Dow Jones, Reuters.

Visit: The Capital Spectator

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