What That 4 Percent GDP Growth Spurt Really Means

After a dismal first quarter, U.S. gross domestic product rebounded in the past three months. Does that mean the economy is finally heating up?

What That 4 Percent GDP Growth Spurt Really Means Photo (cc) by LendingMemo

After a 2.1 percent contraction in the first quarter, U.S. economic growth surpassed estimates in the second quarter, as gross domestic product surged 4 percent. Sounds reassuring, no?

Analysts and economists had predicted growth at 2 to 3 percent, Reuters said.

But before you get too excited about the uptick in the U.S. economy, The Washington Post said you need to consider this: “The bad news is that this latest upswing isn’t one so much as a reversion to the mean.”

The Post said consumer spending growth remained unchanged, as did fixed investment. The biggest growth came from inventory spending, which took a nosedive in the first quarter, then bounced back in the second. According to the Post:

In fact, inventories made up 1.66 of the 4 percentage points of growth this quarter. And that, unfortunately, won’t carry over into the future, since businesses won’t need to restock for a while. In other words, once you account for inventories, the economy wasn’t really as weak as it seemed at the start of the year, and it’s not as strong as it does now. It’s just been the same the whole time: meh.

In addition to business inventory growth, consumer spending increased by 2.5 percent in the second quarter, Reuters said.

Economic growth has remained relatively stable in recent years, mostly expanding by about 2 or 3 percent, The New York Times said. And while slow, steady growth can be good, the Times said the U.S. economy is still performing far below potential.

That growth rate would be just fine in normal times, when the economy is humming along with full employment. But it’s disappointing given that the economy still appears to be functioning below its potential, with unemployment high and businesses still not producing at full capacity.

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