Parents with newborns look forward to every milestone their little ones will hit as they grow. But what happens when your kid is just not growing enough?
Our economy is like a baby who is developing a little but whose growth is slow and we are worried.
Yesterday, we learned that the economy is estimated to have expanded at a mild 2.3 percent in the second quarter. In addition, what was originally estimated as a 0.2 percent retraction in Q1, turned out to be very minor expansion of less than one percent. While growth is welcomed – even if it’s not a healthier 3 percent or more – how much longer can we teeter on the edge of possible recessionary relapse?
Looking back over historical data, economists call this the weakest expansion since World War II as gross domestic product (measuring what goods and services produced in our economy) is only increasing at an annual average rate of 2 percent.
A bump in consumer spending to 2.9 percent drove a good part of last quarter’s growth. Job gains, increases in wages, and savings from lower costs at the pump, put more money in the wallets of Americans. That the savings rate fell from 5.2 to 4.8 percent backs up the theory that Americans are spending rather than stowing away those extra pennies for the future. Because consumer spending accounts for two-thirds of the economy, this is important.
Other areas such as Americans selling their houses, foreign companies buying our products, and the rise in the value of the dollar also contributed to the Q2 lift.
These numbers are more than just graphs and charts, they represent the health of our economy and how over time it affects people’s standards of living.
The Wall Street Journal reports:
The latest figures repeat a familiar pattern over the past several years: a slump at the start of the year, followed by a bounce-back in the spring and summer.
This year’s tepid first quarter reflected a variety of factors that continued to weigh on output in the second quarter, including a stronger dollar, sluggish business investment and choppy consumer spending.
Yet for all the positives, the economy still doesn’t seem to be operating on all cylinders. One persistent weak spot has been business investment, which actually subtracted from GDP growth in the second quarter for the first time since 2012. Nonresidential fixed investment—which reflects spending on software, research and development, equipment and structures—retreated at a 0.6% rate, compared with a 1.6% growth rate in the first quarter.
Still, many economists are predicting stronger growth in the second half, including an even bigger boost from consumers if wages continue to accelerate and employers continue to add jobs at a robust pace…
For Fed officials, who on Wednesday upgraded their assessment of the economy, the GDP report offered signs of firming inflation, another key gauge of the economy’s health.
Economists generally agree that we’re just not seeing strong enough growth to call this a recovery anything other than tepid. As a result, the Federal Reserve, our nation’s biggest bank, is eyeing these numbers closely to determine if it’s time to raise interest rates – upon which all other banks and lending institutions will take their cue for charging interest rates on for home loans, student loans, car loans and the sundry other loans available.
Americans are not nearly as optimistic as even the lukewarm economists about this economy. In fact, our confidence in the national economy has been negative for about six months now. According to Gallup’s Economic Confidence Index, confidence in our economy has “continued its gradual, downward slide,” reaching -14 for the week ending July 26 – a 10-month low for the index. Gallup speculates that instability abroad from the Greek debt crisis to China’s tumultuous stocks raise doubts among Americans about the health of our own economy and future.
What are we take from all of this? We’re in a new normal with an economy that is barely above stalling. Perhaps we’ll return to the days of strong growth and strong job creation – of more than just part-time jobs, but it’s very possible that those good ol’ days may be relics of the past if serious policy changes are not made soon.