U.S. Q2 GDP of 3.3% likely to be fleeting

Posted Aug 28th 2008 9:55AM by Joseph Lazzaro
Filed under: Forecasts, Economic Data, Federal Reserve, Recession

A sluggish U.S. economy that grows at 3.3% in Q2? What's going on here?

The U.S. Commerce Department Thursday revised its Q2 GDP growth estimate to 3.3% from the previously-estimated 1.9%, but economist David H. Wang remains a skeptic regarding the appearance of an economic recovery.

"Don't write home or e-mail home that we have 'blue skies' ahead regarding the U.S economy because the skies remain uncertain and stormy looking. If you take away the export gains, the economy is still pretty weak," Wang said. "Also, one quarter does not a recovery make, and we'll get final data on Q2 GDP in September [September 26]."

Economists surveyed by Bloomberg News had expected the preliminary Q2 GDP statistic to total 2.7%. The U.S. economy grew at a 0.9% annualized pace in Q1 and contracted 0.2% in Q4 2007.

Q2 GDP data fleeting?

Wang said an improvement in exports and inventory accumulation strengthened GDP in Q2, but other factors suggest "it will be difficult, if not impossible to match that GDP growth rate in Q3 and Q4."

"We have a housing sector in a deep recession, job losses in most job categories, a pullback in consumer spending, very high energy prices heading into the winter season, and cautious businesses looking to cut costs where possible," Wang said. "These are not factors that lead to Chinese-style growth levels." [China's GDP has grown at about a 10% annual rate for more than four years.]

In Q2, exports rose 13.2%, but business investment fell 2.5%, housing investment declined 3.2%, while real consumer spending increased 1.7%, the Commerce Department said.

"Seriously, I view the revised Q2 GDP as a momentary increase. The headwinds facing the economy remain, which is why the Fed [U.S. Federal Reserve] should resume cutting interest rates when it meets in September," Wang said. "The fundamentals of the U.S. economy are not strong."

Economic Analysis: Economist Wang does not mince words regarding the Q2 GDP report, or the overall health of the U.S. economy. With the above as guidance, it's best to await the Commerce Department's final estimate for Q2 GDP, but even so, clearly the U.S. economy's fundamentals, except exports, remain weak.

Tags: business investment, consumer spending, exports, featured, Fed, gdp, housing, interest rates, inventories, monetary policy, U.S. Commerce Department, U.S. economy, U.S. Federal Reserve