August 1, 2010

ECONOMY EXPANDING AT SLOWER RATE

The United States economy continues to expand, but at a slower rate than in the Spring quarter -- according to the Commerce Department – after surging 3.7 percent in the winter.

The decline was mostly the result of people buying more imports -- rather than for goods made here.  Also, American firms stocked less inventory.

Both these trends are expected to continue in the current quarter -- further slowing growth according to economists.

GROWING WEAKLY

Patrice Hill, of the Washington Times, writes that the underlying economy is growing quite weakly when the restocking figures are excluded, thus posting a 1.3 percent growth rate in the second quarter from April to June.

The special impetus the economy has enjoyed since last year – from inventory rebuilding – is largely coming to an end and is further weakening growth this summer economists say.

Spending by consumers – which usually is the biggest engine of growth in the economy --- also has been anemic – growing by 1.6 percent in the Spring after a gain of 1.9 percent in the Winter.

Consumers have been setting aside more of their income to replenish their depleted savings.  Thus driving the savings rate up to 6.2 percent.

CONSUMERS CAUTIOUS

According to Harm Bandholz, economist at Unicredit Markets, consumers are cautious because nearly one in ten workers is out of a job.  Unemployment checks are starting to run out.

And unemployed workers are having great difficulty finding jobs.

“While we do not expect a double-dip recession, we think the economic growth will slow even further from its already modest pace,” he said.

The growth of about 3.5 percent in the economy since the beginning of the recovery last summer, has been much too little in light of the massive slump between early 2008 and mid-2009.

LOSS OF OUTPUT

The total loss of output – from the final quarter of 2007 to the second quarter of 2009 – was 4.1 percent.  This is larger than the 3.7 percent that the Commerce Department previously estimated because the collapse in the housing market and consumer spending was worse than originally thought.

Support from a gushing spigot of federal stimulus spending appears to have been critical in fueling the meager growth in recent quarters.  Federal non-defense spending spurted by 13 percent in the Spring – after growing about 5 percent in the two previous quarters.

But the push from federal stimulus also is ending, and state and local governments are starting to retrench with big budget-cuts once again.

“The recovery act will provide very little boost going forward,” said Josh Bivens, analyst at the Economic Policy Institute.  He predicted that lingering high unemployment will “plague the economy for years to come.”

OUR VIEW

Fasten your seat belts.  The economic road ahead is long and bumpy.

A real friend is a person who – when you’ve made a fool of yourself – lets you forget it.

It takes less time to do a thing right than to explain why you did it wrong.

--- Longfellow

Tact is changing the subject without changing your mind.

It’s what you learn -- after you know it all -- that counts.

By Lindsey Wilger Williams, retired newspaper publisher and syndicated columnist