In a worrisome indication of a slowing economic recovery in the United States, the second-quarter annual real gross domestic product growth rate was estimated to be 2.4 per cent, down from 3.7 per cent in the first quarter.
Releasing the “advance” estimate, the U.S. Bureau of Economic Analysis (BEA) emphasised that real GDP — measured as the output of goods and services produced by labour and property located in the U.S. — was based on incomplete source data and possibly subject to further revisions. It added that a second estimate for the quarter, based on more complete data, would be released on August 27.
Commenting on the drop in rate from the previous quarter the BEA said, “The deceleration in real GDP in the second quarter primarily reflected acceleration in imports and deceleration in private inventory investment.” The change in these variables had been partly offset by an upturn in residential and non-residential fixed investment, in state and local government spending and in federal government spending, the source agency added.
Expressing concern over the deeper structural trends in the U.S. economy Barry Bosworth, Senior Fellow at the Brookings Institution, said, “This year, everything is recovering, but imports are coming back a lot faster than our exports are... So we are headed back to the very same large imbalances that we had before the financial crisis occurred.”
The BEA too signalled there was continuing weakness in aggregate demand and it cautioned that the price index for gross domestic purchases, which measures prices paid by U.S. residents, increased by only 0.1 per cent in the second quarter. The index rose by 2.1 per cent in the first quarter. Real personal consumption expenditures also flagged, increasing 1.6 per cent in the second quarter, compared to a 1.9 per cent rise in the first.
A similar pattern of lower-than-last quarter increases were seen in the following variables too: durable goods, nondurable goods, non-residential structures, real exports of goods and services and real private inventories.
Touching upon discussions in the U.S. Congress to end Bush-era tax cuts and sustain fiscal stimulus Mr. Bosworth said the economy was weak and in normal circumstances the stimulus could be continued.
However, he said, “The trouble is this is a short-run problem and what Congress is considering is a permanent action with respect to the tax policy. In the long run, the U.S. has a horrible fiscal problem and we simply cannot afford a tax cut.”
Mr. Bosworth said if there were a way to extend the tax reductions for another year, that might be the best option; however it did not look feasible at this point. He further said that the U.S. was serving as the “engine for growth for the all the rest of the world” with other countries “exporting to the U.S. to sustain their economies”. He warned that the U.S. could afford to go alone in this manner.
