How many economists can dance on the head of a pin? By the time a US recession is declared official by the National Bureau of Economic Research, it will already be well under way. So release of second quarter gross domestic product data was as keenly watched for the revisions as it was for the latest output figures (up an annualised 1.9 per cent). These showed the economy actually shrank in the fourth quarter of 2007 and the weak first quarter GDP growth number was also trimmed, from 1.0 to 0.9 per cent.
Equally worrying, given that consumption represents 71 per cent of GDP, are indications that American shoppers have been struggling for longer than the official numbers had suggested. An important part of that downward revision was consumer spending, from 2.3 per cent to 1 per cent in the fourth quarter. Hopes that the consumer has not lost the buying habit look increasingly forlorn. Despite pocketing rebates from the government, spending on durable goods such as cars fell in the second quarter. Overall, consumer spending was barely positive in June.
In fact, it was largely the weak dollar and government spending that kept the US economy afloat in the second quarter. A big rise in exports and fall in imports boosted the numbers but this looks unsustainable. Local government receipts, geared to property taxes, are softening, with grim implications for budgets.
Meanwhile several industries – notably autos, airlines and construction – already show clear signs of recession. Employment figures will probably show that half a million jobs have been lost in the past seven months. That is not as precipitous a decline as in previous busts but, then, relatively few jobs were added during the boom, while incomes remained stagnant. With many Americans needing to pay off debts and, therefore, cut consumption, it is only a matter of time before the recession becomes official.
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