The GDP (gross domestic product) grew at an annualized rate of 3.2% for this quarter. This is the third straight quarter of growth. Last quarter it was a healthy 5.6%. Although the rate of GDP growth was less robust this quarter many economists see the growth in consumer spending as a sign of a slow but continued growth.
Much of the growth last quarter was driven by businesses re-stocking their inventories and not by consumer spending.
This month consumer spending provided 2.6% of the overall GDP growth (see chart).
Consumer spending is about 70% of the overall economy and consumer spending had plummeted in the last year. This quarter saw the highest rate of consumer spending in three years. It went from 1.6% last quarter to 3.6%. This shows that consumers are more confident in the continued recovery.
While the economy is growing this growth is neither strong enough to bring the economy back to where it would have been had the recession not happened nor enough to make a real dent in unemployment numbers. Economists predict slow, but continued growth (around 3%). Growth at this rate will lower the unemployment rate, but slowly, and only about one percent by the end of this year.
My opinion: this recovery has legs and will probably continue its slow and steady growth. There is the chance of a double dip recession. How great a chance? I don’t know. Too many variables at play. If consumer spending continues to grow, inflation and deflation stay in check, and the bottom completely doesn’t drop out the Euro then expect more of the same. If Greece defaults and the Europe goes into a double dip recession I think that there is a greater likelihood that America would follow. However, the euro zone countries and Greece just announced another round of measures to keep Greece from defaulting and to keep the euro from plunging in value.
Another headwind that is blowing against continued economic growth is lack of business confidence. Businesses are getting more productivity out of their workers and those that have weathered the recession are sitting on large reserves of cash as the economy has continued to grow. But they remain skittish about investing in new ventures and hiring new workers. Economic turbulence in Europe and on Wall Street will not engender confidence, but eventually, if there are not major crises, businesses will begin to invest again.
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