By Kevin G. Hall, McClatchy Newspapers –
WASHINGTON — The U.S. economy grew at a lackluster annualized rate of 1.5 percent from April to June, the Commerce Department reported Friday, also releasing revised growth figures that show that the Great Recession was not as deep as first thought and recovery weaker than believed.
Staying within the range projected by mainstream economists, the estimated second-quarter growth rate of 1.5 percent above the previous quarter represented a deceleration from the annualized growth rate of 1.9 percent from January through March.
The weak growth in the gross domestic product, the broadest measure of goods and services produced in the U.S. economy, is likely to continue for the remainder of the year, warned economists. They point to an economic slowdown in China and the fact that much of Europe is in recession. These events not only slow U.S. exports, a rare bright spot, but also hit the sales numbers of big U.S. multinationals such as Ford and General Motors that operate globally.
“Our exports have been hit pretty hard. In this slow growth environment, these kinds of shocks, concerns, are making businesses very cautious in terms of spending, and hiring in particular,” said Nariman Behravesh, chief economist for forecaster IHS Global Insight. “That explains why the jobs numbers are so weak.”
Add to the Europe and China woes a bitter partisan fight brewing in Washington over expiring tax cuts and planned steep budget cuts, and you get continued slow growth in the months ahead.
“I continue to say 2 percent for the year, that’s certainly lower than I would have said even two months ago,” said Chad Moutray, chief economist for the National Association of Manufacturers. “There are a lot of downside risks there and I think we’re going to continue to see it play itself out.”
If the second quarter numbers didn’t surprise, the 2012 annual revision to growth estimates did.
The Bureau of Economic Analysis, the statistical arm of the Commerce Department, offered revisions over a period from 2008 through the end of 2011 and statisticians found that the painful recession that ran from December 2007 to June 2009 was not as deep as first estimated.
The U.S. economy contracted by cumulative 4.7 percent change during the Great Recession, the BEA said, and not the earlier estimate of 5.1 percent. Similarly, the expansion that followed led to a cumulative, not annualized rate of growth of 5.8 percent through the end of 2011 and not the earlier estimates of 6.2 percent. It means the recession wasn’t as bad as thought, nor the recovery as good as first believed.
BEA statisticians also revised their earlier estimates for the percentages from prior year gross domestic product. The BEA said the 3.5 percent decrease in GDP in 2009 was actually a 3.1 percent decrease. Likewise, the 3 percent increase in GDP during 2010 over 2009 was actually a tamer increase of 2.4 percent. And last year’s sluggish growth rate of 1.7 percent over 2010 levels was a wee bit better, 1.8 percent growth.
Those new numbers don’t wildly change the re-election storyline for President Barack Obama, who can still argue that he inherited the worst recession in modern times and began turning it around. However, his challenger Republican Mitt Romney, the former Massachusetts governor, can point to the new data to suggest that the economic recovery is even weaker than even economists had believed.
One reason the recession appeared worse than it actually was, although it remained terrible nonetheless, was that state and local government spending was not fully captured in first estimates. The revisions are based on fuller annual data that comes from other agencies, the private sector and the IRS, and showed that state and local governments spent more than thought on items beyond salaries and infrastructure projects, both for which both statisticians get real-time data.
Similarly, incomplete data made the economic recovery appear stronger than it actually was, according to Brent Moulton, BEA’s associate director for national economic accounts. With annual survey data from manufacturers and additional tax data from the IRS, he said, the BEA determined that corporate profits were lower than estimated and spending by businesses on things like computers and software was also weaker than believed.
Corporate profits, both from current production and before taxes, were revised down in all three years. Profits from current production were off by 1.4 percent more than thought in 2009, 5.4 percent in 2010 and by 6 percent in 2011.
And one reason profits weren’t so robust is that business activity wasn’t as strong as projected, especially in retail sales and manufacturing. Once statisticians were armed with data from annual surveys of retailers and manufacturers, it became clear that retail sales were weaker than projected. Similarly, said the BEA, manufacturer shipments and inventories weren’t as strong as thought.
Politicians are sure to use the economic data in an attempt to wound the president and his party, although the data offers each side an explanation. Where debate gets murkier is gauging the effect of the massive stimulus spending by the federal government. The economy’s rebound corresponds with the stimulus spending, but actually finding that in the data is not so easy.
Democrats can argue that the revisions point to stronger state and local spending than first thought, and much of the stimulus money went to states with an eye toward slowing what had been a massive bleed in the economy.
But it’s hard to tease out that spending in specific categories, and the data on infrastructure spending doesn’t show an obvious cause and effect.
“The data themselves don’t tell us … which quarters were most affected,” acknowledged Moulton during a briefing for reporters.
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