Thursday, August 28, 2008

U.S. Economy Grew 3.3 Percent In Q2, But…

The recent news that the U.S. economy grew 3.3 percent in quarter two this year came as a shocking, albeit pleasant surprise to Wall Street. The government had estimated a 1.9 percent increase for Q2 and economists surveyed by Dow Jones estimated a 2.7 percent increase, according to the Wall Street Journal. Has the economy finally turned the corner? Can we finally put this economic mess behind us? Well, not exactly; that thinking is still a little premature.

The economy certainly performed much better during Q2 than expected, but it is hard to say exactly what short-term impact the stimulus package had. In addition, another main driving force behind the growth was exports. With the dollar now gaining value against other currencies and the rest of the world beginning to feel their own financial hardships, it might be a stretch to think export growth will continue at its present pace. Richard Fischer, president of the Federal Reserve Bank of Dallas, was certainly not very optimistic in an interview he had with the Wall Street Journal Monday, “'Growth will taper a snail's pace in the second half,’ and it ‘may be anemic for a while,’ Mr. Fisher said, adding that he ‘could see us approaching’ zero growth during the latter half of the year due to the ‘enormous stress’ created by financial markets, which remain strained.”

It is great news that the economy grew as it did, and especially that our export numbers are up. I, for one, was not predicting the economy to grow this much. I thought the stimulus package would have an impact and that we would show some growth, but my expectations were probably more in line with the government’s 1.9 percent estimates than the actual 3.3 percent that was recorded. That being said, I’m still concerned about the economy and feel as if the worst is yet to come. I see a deficit that is still growing out of control, a struggling housing market, a declining job market and low consumer and business confidence.

The economy is still fragile and any number of things could set it off in the wrong direction. So I’m going to take this news with a grain of salt. I’m happy that we saw some good growth and I hope that we can continue to grow the economy, especially our exports. I’m not going to hold my breath, though, and I’m still going to take due precautions with my investments.

1 comment:

Ron Robins said...

Please note that the deflator used for Q2 growth was 1.2%! Would they have used the accompanying 4+% - as reported in a 'side report' - then the GDP growth would've been either flat or negative!

The government loves to use the 'chained' deflator as it minimizes the impact of sudden changes. However, when these sudden changes to prices occur, as we have seen recently with the steep rise in inflation, using the chained deflator provides a completely nonsensical result.

Politicians loves this so they can look better!

I'm always amazed how gullible the media and the public are when these fictitious numbers are spewed out.