Business and Consumer Spending Drag on Domestic Output

by devteam July 31st, 2009 | Share

Advanced estimates of Gross Domestic Product indicated output of goods and services produced by labor and property in the United States declined by 1.0% in the second quarter, marking the third straight quarter of GDP contraction.

Although better than the 1.5% decline economists had forecast and much improved from the -6.4% first quarter GDP read, the details were less optimistic than the headline as struggles in the labor market continue to have detrimental effects on consumer spending.

Real personal consumption expenditures, which measures spending by all consumers on goods and services, decreased 1.2% in the second quarter, in contrast to an increase of 0.6% in the first.

“We maintain our view that the economy will have a sub-par recovery, atrnleast relative to past recoveries when the average increase in outputrnfour quarters after the economic trough was a robust 6.6%,” said JosephrnLaVorgna prior to the release. “We continue to believe this is the casernbecause of overleveraged US households.”

He continued: “Sincernconsumer spending is the primary driver out of a recession, thernstructural headwinds facing consumers assure us that growth will not bernas strong as what we typically see in the early stages of a recovery,rnespecially considering the depth of the current downturn.”

Negative contributions also came from nonresidential fixed investment (business investment spending), residential fixed investments (constructing single family homes and apartment buildings), and exports.

Although business spending continues to contribute negative growth to overall domestic output, an optimistic outlook for stabilization can be taken from the slowing pace of decline. Real nonresidential fixed investment decreased by only 8.9% in the second quarter after a decrease of 39.2% in the first.

Adding positive contributions to the advanced GDP read was federal, state, and local government spending.

Current-dollar GDP, the market value of the nation's output of goods and services, decreased 0.8%, or $28.2 billion, in the second quarter to a level of $14.15 trillion.  In the first quarter, current-dollar GDP decreased 4.6% , or $169.3 billion.

The Bureau of Economic Analysis emphasized that the second-quarter advance estimate released today is based on source data that are incomplete or subject to further revision by the source agency.  The “second” estimate for the second quarter, based on more complete data, will be released on August 27, 2009.

All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of is prohibited.

About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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