Outlook for Third-Quarter GDP

The second-quarter GDP report showed the economy contracted by 1%. But what I found most disturbing was that consumer spending declined by 1.2% which lowered the overall GDP figure by 0.88%. Contrast that with federal spending which rose by 10.9% and you can see why I’m so concerned.

So how is the third quarter shaping up? We’re already half-way through the third quarter and the outlook is improving. This is due to an improving trade deficit (thanks to falling imports), a 6.4% increase in productivity (thanks to layoffs) and anticipation that businesses will rebuild inventories (thanks to rising wholesale costs).

This isn’t an ideal recovery since the primary glitch is that consumers are being hindered by high unemployment. Normally, consumers have accounted for 70% of U.S. economic growth. That’s why I don’t expect the economy to average much more than 2% growth over the next several quarters.

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