U.S. Growth Slows

Analysts dissect the new report out of the Commerce Department

U.S. economic growth slowed in the second quarter, the Commerce Department announced on Friday. Simultaneously, Commerce revised its assessments of previous quarters' growth, to reflect new information both that the recession was "deeper than earlier believed," as The Wall Street Journal puts it, and that growth in the first quarter of this year was higher than earlier believed.

What do these reports actually mean? Econobloggers and professional analysts are busy poring over the numbers. Here are the highlights of their assessments so far:

• 'Anemic' Consumer Spending  This much is common to both the first and second quarter. Writes Daily Finance's Joseph Lazzaro: "In the second quarter, one clear reason the U.S. economy performed well below its potential was that budget-pinched consumers remained frugal." Meanwhile, comments by Dan Greenhaus of Miller Tabak in a Wall Street Journal roundup note that "[w]hile first quarter GDP is now shown to be considerably stronger than originally reported, consumer spending was revised lower." The Washington Independent's Annie Lowrey says the consistently sluggish return in consumer spending "is a sign that unemployment, underemployment and concern about the weak recovery are keeping consumers from opening their wallets; it is also a cause and an effect of the lagging recovery."

• GDP Damage From Surging Imports  "The big story in the second quarter," argues Joshua Shapiro of MFR Inc. in The Wall Street Journal, "was that a surge in imports suppressed GDP growth by an enormous 4.0 percentage points." Daily Finance's Joseph Lazzaro points out that exports grew, too, but import growth so exceeded export growth that net exports were negative in the GDP summation. Economist Spencer at Angry Bear puts the numbers in context:

Domestic stimulus is working, but because of the international leakages it is being dissipated abroad and the economy is not responding. This is the real structural problem the economy is facing and reflects the major hurdle that did not exist before the US started borrowing abroad to live beyond its means in the early 1980s.

• The Big Picture  "There is economic recovery happening.  It just is not bringing jobs along with it," summarizes 24/7 Wall St.'s Jon Ogg, noting that the economy was, in fact, still growing. The Economist's Ryan Avent casts the numbers in darker terms: "Taken all together, underlying growth looks quite weak, and in quarters to come the contribution from both government and inventory shifts will fall, or turn negative. All indicators suggest that second half growth will be no faster than first half growth." Peter Boockvar has an interesting observation for those following politics: "key contributors to Q2 GDP growth was government largesse as seen by the 4.4% gain in government spending and the large boost in residential construction mostly due to the home buying tax credit."

• What's Next for the Economy  The most comprehensive set of predictions in The Wall Street Journal's roundup of reactions comes from Augustine Faucher of Moody's Economy.com:

Growth will remain near its current rate, just barely enough to keep pace with an expanding labor force. As unemployed workers move back into the labor force as the job market slowly improves, the unemployment rate will rise ... Economic growth will then pick up in early 2011 because of larger job gains, an expanding global economy, improved credit flows, and stronger homebuilding. Growth will be very strong in 2011 and 2012 as pent-up consumer demand kicks in and commercial construction bottoms out, finally bringing down the unemployment rate. Risks are weighted to the downside, and the probability of a double-dip recession is close to one in four.

• What's Next for Politics "Politically," notes Reuters's James Pethokoukis, "the issue is not whether the U.S. economy will slip into a double-dip recession ... It's how the economy will impact voter mood in 100 days. Will they think America is back on track toward prosperity with growth below trend and unemployment hovering around double digits? That seems unlikely to me."