Q2 GDP -1%

This morning, the government reported that gross domestic product for the second quarter contracted by 1%. This means the recession was still going on, but the number wasn’t as bad as the -1.5% expected by economists. The bad news was that the Commerce Department revised downward its estimate for first-quarter GDP from -5.5% to -6.4%.

Now, even with jobs still vanishing and wages flat, many forecasters expect the economy to touch bottom sometime in the next few months. Economists say that businesses from small manufacturers to big automakers are poised to rebuild their depleted inventories, which fell by an annualized $141 billion in the second quarter. That restocking could spur economic growth later this year.

“We’re going from recession to recovery, but at least early on, it’s not going to feel like one,” said the chief economist at Moody’s Economy.com, Mark Zandi. “For economists, this is a seminal part in the business cycle, but for most Americans, it won’t mean much.”

That is because the job market is expected to remain dismal even after the economy resumes growing. As business picks up after a recession and companies start receiving more orders and restocking their shelves, employers will still resist hiring new full-time workers, and instead pay overtime or rely on part-time employees.

Since businesses have depleted inventories and the price of raw materials is rising due to global demand and a weak U.S. dollar, a modest uptick in business spending is now underway. As a result, GDP should rise in the third and fourth quarters. That’s why many companies are issuing positive earnings guidance for the second half of 2009.

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