Second-quarter growth is looking crummy
By Neil Irwin
Don't look now, but the bottom is falling out of analysts' estimates of how fast the economy grew from April to June.
As recently as Monday, forecasters figured that gross domestic product grew at a 3 percent to 3.5 percent rate in the second quarter -- not fast enough for anyone to crow about, given that the U.S. economy is producing far below its potential, but at least fast enough that the nation seemed to be gaining economic ground.
For context, the U.S. economy is capable of growing at a 2.5 percent to 3 percent rate in the long run, thanks to population growth and productivity gains. The economy must grow faster than that to make up for lost ground. Previous deep recessions, notably that in the early 1980s, were followed by several quarters of 5 percent or faster growth.
But after disappointing reports on international trade Tuesday and retail sales Wednesday, forecasters have marked down their estimates of second-quarter growth. It now appears the economy was growing too slowly to keep up with its long-term trend and was not making up lost ground.
Forecasting firm Macroeconomic Advisers, for example, estimated that second-quarter GDP growth would be 3.2 percent on Friday, but it revised the estimate to 2.1 percent today.
"Another day, another downward revision," was the title that J.P. Morgan Chase economist Michael Feroli gave to his report on the retail numbers, revising his expectation for second-quarter growth to a "soggy" 2.2 percent.
As Feroli points out, though, at least the weak employment numbers of the last couple of months now make sense given the apparent deceleration in growth.
To be clear: If second-quarter growth indeed turns out to be in the low 2 percent range (the Commerce Department will release its initial estimate on July 30), it would mean that the economic expansion is going too slowly to put America back to work and bring down unemployment.
July 14, 2010; 11:23 AM ET
Categories: U.S. Economy
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