Why GDP Growth Is Slowing

The largest increase in imports in 26 years stalls growth

This article is from the archive of our partner .

The Commerce Department has revised second-quarter GDP growth from the earlier estimate of 2.4 percent down to 1.6 percent. Though it was the fourth straight quarter of GDP growth, economists are deeply disappointed by the figure, which they say is far lower than what's needed for sufficient economic recovery. Experts say GDP growth of at least 3 percent is required to keep pace with population growth. Here's what we can learn from this discouraging report.

  • Trade Imbalance Playing Role  The Financial Times' Donia O'Laughlin reports, "The [Commerce] department said that growth was held back by the largest increase in imports in 26 years." Commerce spokespeople say the drop "primarily reflected a sharp acceleration in imports and a sharp deceleration in private inventory investment." MarketWatch's Steve Goldstein explains, "Exports rose 9.1%, but imports grew a startling 32.4% -- the biggest jump since the first quarter of 1984. Imports took away 4.45 percentage points from GDP in the second quarter."
  • Reflects Anemic Commercial Activity  MarketWatch's Steve Goldstein writes, "The figures more broadly paint a picture of the $14.58 trillion economy led by business investment, one that data on more recent activity suggest is struggling to grow. Gross domestic product, reflecting the inflation-adjusted, seasonally adjusted value of all goods and services produced in the U.S., slowed from the 3.7% annualized pace in the first quarter, the Commerce Department's data showed. Final sales to domestic purchasers -- which include consumers, businesses and the government -- rose 4.3%. The sharply downward GDP revision from the 2.4% growth initially pegged was largely expected after the release of June inventories and imports reports, which were not available for the first estimate released on July 30."
  • Next Quarter Doesn't Look Much Better  The New York Daily News' Sean Alfano projects, "The outlook for the third quarter isn't much better with economists expecting just a 1.7% growth. Also, the private sector is not adding enough jobs to dent the unemployment rate, which remains stuck at 9.5%. The sagging housing market has also been a drag on economic growth. Earlier this week, new home sales sunk to a record low in July and existing homes sales fell 27%. Consumer spending in the second quarter grew 2%, from 1.9% in the first quarter."
  • Risk of Another Recession?  The Los Angeles Times' Jim Puzzanghera warns, "The drop was slightly less than many economists had predicted, but the report still put an exclamation point on a week of bad economic news that has raised fears the nation could plunge into another recession. ... Economists had projected second-quarter GDP could fall to 1.3% or lower. Still, Friday's report was discouraging because growth below 2% reflects a very weak recovery. The economy had grown at a 3.7% rate in the first quarter and 5% in the final three months of last year."
  • Will Usher GOP Victories in November  Veteran political handicapper Larry Sabato puts it succinctly. "With this a.m.'s major revision downward of 2nd quarter GDP, the electoral cake for 2010 is nearly baked. The frosting will read: G.O.P."
This article is from the archive of our partner The Wire.