GDP Down 1.0% in 2nd Quarter
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Real federal government consumption expenditures and gross investment increased 10.9 percent in the second quarter, in contrast to a decrease of 4.3 percent in the first. National defense increased 13.3 percent, in contrast to a decrease of 5.1 percent. Nondefense increased 6.0 percent, in contrast to a decrease of 2.5 percent. Real state and local government consumption expenditures and gross investment increased 2.4 percent, in contrast to a decrease of 1.5 percent.
The government is stepping in to stem the decline in demand from the private sector. However, any sustainable recovery will come from private industry. Unfortunately, private inventories are collapsing:
The change in real private inventories subtracted 0.83 percentage point from the second-quarter change in real GDP after subtracting 2.36 percentage points from the first-quarter change. Private businesses decreased inventories $141.1 billion in the second quarter, following decreases of $113.9 billion in the first quarter and of $37.4 billion in the fourth.
The decline in private inventories sets us up for a short-term inventory bounce in the coming quarters. But with a hurting consumer, all inventory bounces will be temporary:
Personal outlays decreased $18.1 billion (0.7 percent) in the second quarter, compared with a decrease of $27.6 billion (1.1 percent) in the first. Personal saving — disposable personal income lesspersonal outlays — was $566.0 billion in the second quarter, compared with $426.9 billion in the first. The personal saving rate — saving as a percentage of disposable personal income — was 5.2 percent in the second quarter, compared with 4.0 percent in the first.
We’re at such depressed levels that I wouldn’t be surprised by a positive GDP print in the 3rd and 4th quarter. However, there’s still too much credit that needs to contract, which means the economy will likely head right back down in 2010.
