Second Quarter U.S. GDP Down I

How much America produces as measured by its Gross Domestic Product fell again in the second quarter which ended June 30th, 2009. The decline of about one percent was in line with consensus estimates. No surprise to the stock market which rallied yesterday in anticipation. You could say the increase in pain is slowing down or as economists would put it the economic decline is decelerating.

Analysis

How did we get to a -1 percent seasonally adjusted annual rate of decline in total spending from a 6.4 percent decline in the first quarter? The huge declines in investment spending turned into more modest declines in the second quarter. This improvement would have gotten us back to zero but the rest of the accounts deteriorated by about one percent.

Government spending went from a net drag on the economy to a net addition to aggregate demand. Consumption spending fell however. While bad for contributing to domestic demand, it is a step toward correcting the fundamental imbalances that enabled the Great Financial Bust.

Exports contributed less and imports contributed more the growth in spending than in the previous quarter. For four straight quarters, import reductions have offset export losses to make a net positive contribution to the demand for American products and services. You could say we have helped ourselves by exporting part of the recession.

Has the Recovery Begun?

While my initial call that the U.S. economy toughed in March looks a tad optimistic, it now seems most likely that the turning point was in second quarter.

Revisions

The scorekeepers in the Commerce department's Bureau of Economic Analysis revised the history, so do not be surprised to find out that what you thought you knew about past cycles has been thrown down the memory tube (if you do not catch the allusion to 1984, add Orwell's book to your "Must Read List.") I do see that the BEA now shows one negative growth for 2008 quarter.