Q2 GDP revised downward to 1.6%

posted at 8:35 am on August 27, 2010 by Ed Morrissey

The GDP number for the second quarter got revised sharply downward by a third today, dropping from the initial estimate of 2.4% last month to 1.6% in the intermediate revision.  The number represents a hard rebuke to White House attempts to paint a rosy long-term economic picture, as the anemic growth rate may indicate even more trouble ahead for joblessness:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.6 percent in the second quarter of 2010, (that is, from the first quarter to the second quarter), according to the “second” estimate released by the Bureau of Economic Analysis. In the first quarter, real GDP increased 3.7 percent.

The Commerce Department notes that even this weak level of growth was mainly dependent on government spending:

The deceleration in real GDP in the second quarter primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment that were partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.

In other words, real private-sector growth simply isn’t happening. Government can’t spend its way into real economic expansion, as we have seen every 35 years or so in the US.

If people wonder whether the administration can spin this news as somehow just another speed bump Recovery Summer Highway, the AP’s take on the revision (pre-release) spells trouble for spinmeisters:

The government is about to confirm what many people have felt for some time: The economy barely has a pulse. …

That’s a sharp slowdown from the first quarter, when the economy grew at a 3.7 percent annual rate, and economists say it’s a taste of the weakness to come. The current quarter isn’t expected to be much better, with many economists forecasting growth of only 1.7 percent.

The dismissive talk about double-dip recessions is also coming to an end:

“The economy is going to limp along for the next few months,” said Gus Faucher, an economist at Moody’s Analytics. There’s even a one in three chance it could slip back into recession, he said.

Earlier this week, I wrote that Porkulus turned out to be nothing but Cash for Clunkers on the largest possible scale — a short-term intervention that only gave the illusion of growth and recovery.  Once the cash started running low, the economy returned to the same problems that the Obama administration attempted to hide through misdirection and massive borrowing.  Again, the AP has come around to the same conclusion:

Many temporary factors that boosted the economy earlier this year are fading. Companies built up their inventories after cutting them sharply in the recession to match slower sales. The increase provided a boost to manufacturers, but now many companies’ stockpiles are in line with sales and don’t need to grow as much.

In addition, the impact of the government’s $862 billion fiscal stimulus program is lessening.

It’s not “in addition,” though.  The decrescendo of cash is the reason the economy is reversing, because we didn’t have real and sustainable private-sector growth in the first place.  What we saw was the product of someone dumping a trillion dollars in cash into the economy in an attempt to play a psychological trick on consumers and employers.  It was smoke and mirrors, only the smoke is evaporating and the mirrors now reflect reality.


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Comment pages: 1 2

Everyone keeps saying the 1st quarter GDP was 3.7, well, that was the initial report, it was revised down to 3.0, then 2.7

4th quarter was 5.9, it was later revised down to 5.6

They have been fudging the numbers for a long time now, in every indicator the Government puts out, as if they are doing it by orders from the WH.

WoosterOh on August 27, 2010 at 11:11 AM

What I am getting at is the admin gives a rosy picture, then months later they hide that things were not as good as they claimed, and even the 3.7% is still be reported.

Reminds me of Obama and his silly Greek facade.

WoosterOh on August 27, 2010 at 11:16 AM

Rockmom good luck… Sorry to hear things have been so bad.

I live in a very stable neighborhood mostly fns who’ve owned their homes for years and didn’t use them as ATMs. My husband and I walk our dog every night and we for the 1st time saw a house in foreclosed inthe beginning of the summer… now there are 3. The economy is sinking and we all need to pray for righteous leaders to pull us out of this. We all need to get involved to get those leaders. We need to tell our friends and family who aren’t paying attention that we need to act and NOW.

CCRWM on August 27, 2010 at 11:17 AM

Real gross domestic product

Actually, “domestic product real gross” is more like it.

Del Dolemonte on August 27, 2010 at 11:25 AM

Figures don’t lie, but liars figure.

Mirimichi on August 27, 2010 at 11:31 AM

So very close.

On the Poll of “guess the Q2 GDP” here I said 1.5; or more accurately 2.4 to be revised down to 1.5…

I called the 2.4 and came closer than I had any right to with my vote of 1.5. Clearly Barrons or someone needs to hire me for my WAG skills.

gekkobear on August 27, 2010 at 11:38 AM

“revised”…

… Is that the new “unexpected“?

Seven Percent Solution on August 27, 2010 at 11:55 AM

It had the indended result so far though, the DOW is up.

ORconservative on August 27, 2010 at 11:59 AM

rockmom on August 27, 2010 at 9:04 AM

I am sorry to hear of your troubles. Keep you head up and keep moving forward. I know it must be hard. We will reach the other side of this. All the best to you and your family.

d1carter on August 27, 2010 at 12:00 PM

Early this morning I was thinking about the constant drumbeat over the last year and a half about “green shoots”, etc….

Cody1991 on August 27, 2010 at 9:21 AM

Which is more of a sure thing? The American Economy recovering from Imam Obama & Co’s radical policies, or the Gulf of Mexico recovering from what has been said to be the largest environmental disaster in American history?

The oil-covered shorelines in the Gulf are already showing green shoots…do you see any in the economy?

ornery_independent on August 27, 2010 at 12:13 PM

It’s not “in addition,” though. The decrescendo of cash is the reason the economy is reversing, because we didn’t have real and sustainable private-sector growth in the first place. What we saw was the product of someone dumping a trillion dollars in cash into the economy in an attempt to play a psychological trick on consumers and employers. It was smoke and mirrors, only the smoke is evaporating and the mirrors now reflect reality.

Ed, you’re a nice guy, but you should stick to political rants and not economics, it is not your forte. It’s not mine, either, but a little common sense could be injected here.

You haven’t noted that corporate profits are near an all time high of $1.6 Trillion, double what they were in 2000, and almost identical to what they were at the 2007 peak.

http://economix.blogs.nytimes.com/2010/08/27/corporate-profits-near-pre-recession-peak/?hp

US businesses are sitting on a veritable mountain of cash, squeezing every last measure of efficiency out of employees, banks are still not lending to consumers or businesses at near past levels, but holding cash, and we poor debt laden consumers have actually paid down tons of it and increased savings a lot, again holding onto cash.

Why? I’m sure it’s due to uncertainty, but that is a result of both US and worldwide conditions, and cannot be blamed solely on the administration.

The poor economy is not for ‘lack of cash’ it’s for general lack of spending that cash. The ‘Porkulus’ you love to deride is not lost money but cash sucked up into holdings. When spending and investment resume, and with this much cash sitting around, it will resume at some point, the economy will likely come out quite strong in the future.

trailboss on August 27, 2010 at 12:38 PM

Everyone keeps saying the 1st quarter GDP was 3.7, well, that was the initial report, it was revised down to 3.0, then 2.7

WoosterOh on August 27, 2010 at 11:11 AM

Revising the 1st quarter GDP down is how they propped up ‘growth’ for the 2nd quarter.

agmartin on August 27, 2010 at 1:37 PM

partly offset by an upturn in residential fixed investment, an acceleration in nonresidential fixed investment, an upturn in state and local government spending, and an acceleration in federal government spending.

Residential fixed investment=cash for homes? Upturn in state and local spending = federal government spending via Porkulus.

hawksruleva on August 27, 2010 at 4:28 PM

Obama’s America

Inanemergencydial on August 27, 2010 at 4:40 PM

What I am getting at is the admin gives a rosy picture, then months later they hide that things were not as good as they claimed, and even the 3.7% is still be reported.

Reminds me of Obama and his silly Greek facade.

WoosterOh on August 27, 2010 at 11:16 AM

I wholeheartedly agree with you, but, you know, checking facts so that you actually report accurate information seems to be really hard work for them. LOL!

Theophile on August 27, 2010 at 5:05 PM

dropping from the initial estimate of 2.4% last month to 1.6%

I’m sure it’s been said in this thread already…but I don’t believe that 1.6% number either. Way too high. These liars are fudging the numbers and have been since Obama took over.

AUINSC on August 27, 2010 at 6:14 PM

faraway on August 27, 2010 at 8:49 AM

and is barely moving on its rims…

jbh45 on August 27, 2010 at 8:52 AM

Don’t forget, they’re magnesium rims

Blacksmith on August 28, 2010 at 12:16 AM

Comment pages: 1 2