U.S. citizens: A belt-tightening bunch

The significance for investors? Foremost, the era of the "frugal consumer" -- a substantive, sustained decline in consumption -- is far from over. Hence, the U.S. economy is still in urgent need of growth engines to create demand. Moreover, those investors or economists who think that the federal government's $787 billion stimulus package, despite its flaws, is not making a difference, need to look at the GDP data: without the stimulus spending the recession -- already long and deep -- would be worse. There would not have been demand from state expenditures via federal stimulus dollars to offset the huge hole in consumer spending. Don't even think of the condition the U.S. economy would be in, without stimulus, left to consumer spending alone. Government spending added about 1.12 percentage points to GDP in Q2, the U.S. Commerce Department said.

Second, in Q2 the employment cost index rose 0.4%, on top of a 0.3% rise in Q1. Further, over the past year, employment costs are up 1.8% -- or the smallest yearly increase since the U.S. government began tracking the data in 1980. Translation: there is no wage pressure (that should be no surprise to any investor), and inflation, from a wage standpoint, is nil. Hence, the inflation hawks will remain in their nests.

Overall, the Q2 GDP report shows a U.S. economy still in need of large amounts of demand, driven by as-yet unidentified engines of growth. It's also an economy where the larger threat, on balance, remains deflation, not inflation.

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Financial Editor Joseph Lazzaro is writing a book on the U.S. presidency and the U.S. economy.