US GDP Grew 1.9% in Second Quarter

The US Department of Commerce announced that the US GDP grew 1.9% in second quarter 2008. This figure fell short of most economists’ predictions of 2.3% growth. Commerce also revised first quarter growth down to 0.9% from 1.0%. Its revision to fourth quarter 2007 showed the US economy shrank by 0.2% rather than showing it grew by 0.6%. Technically, it’s still not a recession, but that doesn’t make much difference at this point.

The weakening US dollar helped boost exports by 9.2% in the second quarter, much faster than the 5.1% growth in the first quarter. Imports dropped by 6.6% in the second quarter, largely for the same reason. A weaker dollar can lead to inflation, but the inflation rate excluding food and energy costs was flat at 2.2%.

Many believe the Bush administration’s economic stimulus plan, which gave most Americans a few hundred dollars to spend, helped out in the second quarter. However, rather than buy durable goods (down 3.0%), Americans bought gas and food, which are both higher than at the beginning of the year.

Ominously, though, the trade deficit shrank to $395.2 billion. By and large that is a good thing. Yet excluding that, the US GDP would have contracted by 0.5%. With other countries having their own economic difficulties, US exports may slow, and therefore, growth could be spotty.

White House Budget Director Jim Nussle said in an interview on CNBC, “I think we have avoided a recession.” While true that the classic definition requires two consecutive quarters of negative growth, Mr. Nussle may be a bit premature. After all, there’s always next quarter about which to worry. Mr. Bush is on the hook for two more quarters.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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