Friday, July 31, 2009

Postcards From the Economic Abyss

Jared Bernstein made an appearance on the Pravda channel MSNBC to tout the news 2nd Quarter GDP only contracted at a rate of 1% compared to the 5.4% and 6.4% contraction of previous quarters. As I write President Obama takes to the airwaves to proclaim this news proof positive of the wondrous efforts of team Obama to save the economy from complete collapse. MSNBC is all a-tingle with this "green shoot" of good news and running with it for all it's glory. The President made quite a fuss about the riproaring success of the cash-for-clunkers program. Phew, what a relief, never mind those nasty polls you have been seeing lately, we're all saved.

Not so fast, let's take a look at the big picture and what those miraculous GDP numbers tell us. Donald Marron has prepared a handy-dandy little chart that shows broad weakness in 2nd quarter GD:

Marron notes the most glaring feature of the data is the broadness of the weakness in each sector of GDP. Offsetting the weakness is increased government spending and more importantly a decrease in imports:
A sharp decline in imports, finally, was the biggest contributor to growth in Q2, at least in an accounting sense. It’s important to choose your words carefully here, since declining imports are clearly not the path to prosperity.

And as for government spending:
Not surprisingly, government spending helped offset the declines in private spending. Most of the boost came from defense spending, but state and local investment also helped (perhaps some glimmers of stimulus?).

Credit where credit is due, there is a glimmer of hope from the Trillion dollar stimulus. But the GDP estimate shows declines in every category of private demand. The red bars reflect declines in consumer spending, residential investment, business investment in equipment and software, business investment in structures, and exports.
Just imagine how bad that would have looked without cash-for-clunkers.

UPDATE: Keith Hennessey has a great analysis of 2nd Quarter GDP numbers.

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