U.S. Economy: Booming, or Floundering?

[unlawflcombatnt]

Today's GDP report indicates further slowing of the U.S. economy. The 2.5% second quarter GDP growth was less than the 3.0% predicted. In addition, even the 2.5% increase overstates the economy's strength. Final Sales of GDP, which many consider a better indicator of the economy, increased only 2.1%. Without the addition of unsold inventories to the total GDP, the 2nd quarter GDP increased would have been only 2.1%, not 2.5%. The difference is that (unsold) inventories increased significantly by $52.6 billion.

Also of interest is the downward revision of many of the previous 3 quarters statistics, as well as upward revision of inventories. The 2006-1st quarter inventories were revised upward from $29.5 billion to $41.2 billion. (This means $11.7 billion less of our GDP was actually sold). For the 4th quarter of 2005, unsold Inventories was revised upward by $5.4 billion, from $37.9 billion to $43.5 billion. 3rd quarter inventories were also revised upward by $0.6 billion. Final Sales of GDP were also revised downward slightly for the previous 3 quarters.

Residential Investment (real estate investment) was revised downward sharply for the previous 2 quarters, marking 3 straight quarters of declining investment in real estate. 2nd quarter 2006 Residential Investment declined 6.3%. 1st quarter Residential Investment was revised downward from +3.3% to -0.3%. Residential Investment for the 4th quarter of 2005 was revised downward from +2.8% to -0.9%. These newly stated declines in Residential Investment are certainly more consistent with rapidly declining new home sales. Below is a copy of Briefing.com's chart showing the numbers posted on 7-27-06 vs. the actual report and "revised" numbers for the previous quarters' GDP.



Today's GDP report can be found at: Briefing.com

The previous years' GDPs have also been revised downward. Year 2005's GDP was revised downward from a growth of 3.5% to a growth of 3.2%. Year 2004's GDP was revised downward from 4.2% to 3.9%. These numbers can be seen from the copy of the chart from page 11 of the U.S. Bureau of Economic Analysis (BEA) report below.



Here is the link to the BEA's report on the GDP from 7-28-06.
http://www.bea.gov/bea/newsrelarchive/2006/gdp206a.pdf

However, the most concerning aspect of the GDP report is that an increasingly larger amount is being financed by borrowed money, not income. The annualized difference between personal income and spending (also known as "savings") widened to a -$141 billion. Personal Consumption Expenditures increased $44 billion more than Personal Income. Economic "growth" continues to be funded largely by the expenditure of borrowed money, not earned income. It's unknown how much longer our current GDP "growth" can be financed by ever increasing debt. But one thing is certain. This is not a sustainable course.

Increasing inventories and increased consumer "deficit" spending are not signs of a healthy economy. They're signs of an economy that's circling the drain.

unlawflcombatnt

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___________
The economy needs balance between the "means of production" & "means of consumption."

[liberal N proud]

1. I just got a similar report from Vanguard

Doesn't look so good but they will spin the shit and make it look like roses again

[rusty charly]

2. Floundering

The housing industry — which largely carried the American economy through the tribulations of the 2000 stock-market crash, a recession and climbing oil prices — has lost its vigor in recent months and now has begun to bog down the broader economy, which slowed to a modest 2.5 percent growth rate this spring. That was a sharp comedown from the 5.6 percent growth rate of the first quarter, the Commerce Department reported yesterday, caused in part by the third consecutive quarterly decline in spending on houses and apartment buildings, after several years of rapid growth.

“It hasn’t slowed down a little bit — it has slowed down a lot,” said Doug McCraw, a developer who has scrapped his plans for a 205-unit condominium tower in a neighborhood just north of downtown Fort Lauderdale, Fla. “Anybody who did not have a shovel in the dirt has chosen to wait till the market settles.” The housing slowdown is perhaps the clearest effect of the Federal Reserve’s two-year campaign of raising interest rates in a bid to tap the brakes on the economy and reduce inflation. That campaign has been largely successful, with the decline happening gradually while other parts of the economy, mainly the corporate sector, pick up much of the slack.

http://www.nytimes.com/2006/07/29/business/29housing.html?hp&ex=1154145600&en=a2b5074984edd9c0&ei=5094&partner=homepage

“Housing is going from being far and away the most important contributor to growth to being a measurable drag, and it’s happening gracefully so far,” said Mark Zandi, chief economist of Moody’s Economy.com, a research company. “But there’s now a growing and measurable risk that things don’t go according to plan.”

[unlawflcombatnt]

8. Thanks for posting this

The article was very interesting, and had some good solid statisitcs to back it up.

unlawflcombatnt

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[paulk]

3. "an increasingly larger amount is being financed

by borrowed money, not income".

if the economy wasn't being propped up by debt, the numbers would show that we're in a recession. And we are in a recession, btw.

[leftofthedial]

4. can you say "crapper"?

as in "in the"?

[unlawflcombatnt]

9. Yes

"Crapper" sounds extremely appropriate here. David Sirota has said we're in kind of a "slow-motion" recession. I have to agree with that. The only thing "slowing" the recession is the false optimism perpetuated by the hot air from Right-Wing windbags like Larry "I-lost-my-straitjacket" Kudlow. He even interviews other alternate reality celebrities like Arthur Laffer, who's ideas have been disproved many times over.

unlawflcombatnt

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___________
The economy needs balance between the "means of production" & "means of consumption."

[welshTerrier2]

5. we are borrowed up the yin-yang ...

the economy has been kept afloat by consumer spending which has been kept afloat by borrowing ...

over the past 5 years or so, Americans have refinanced their homes over and over and over as rates declined ... but in doing so, they also pulled more and more equity from their homes ... this was possible because housing prices were rising rapidly ...

that "cash cow" has come down with mad cash cow disease ... if housing prices experience the kind of bubble bursting decline being forecast, we may have a situation where mortgages exceed home valuations ...

should this occur, first, it's clear no further borrowing will be possible and consumer spending will plummet and second, the banks will find themselves with inadequate collateral for their mortgages ... that could create serious devastation to the banking industry ...

we are in very serious trouble in this country ... looking at little reports and picking out the "good stuff" won't change the future we face ... it's about time we started talking about some very serious and very painful budget cutting ... i would start with the bloated defense budget ... i would also start rationing gasoline and pumping money into real mass transit systems ... we cannot continue our junkie addiction to oil ...

[unlawflcombatnt]

7. Housing Decline

The deflation of the housing bubble is definitely starting to take effect. An estimate earlier this year was that borrowed money from home equity loans would decline over $120 billion this year. The most recent new home sales numbers are evidence of the deflating housing bubble. Even here, the Bush dictatorship is trying to keep the Housing Bubble inflated with hot air.

New home sales declined far more than anticipated by the so-called "experts." The decline from the original numbers posted from May was actually -8.3%. However, May's numbers were downwardly revised by the government so that the decline in June home sales would appear less. Following this manipulation, June New Home Sales were reported as having declined only 3%, not 8.3% like they actually did. Below is the "before" and "after" New Home Sale numbers. The top half of the graphic shows the current New Home Sale numbers superimposed on the previous month's numbers showing what the actual change would have been, had the previous months' numbers hadn't been downwardly revised. The bottom shows the currently "revised" (manipulated) numbers.



The updated version of the New Home Sale decline can be found at Briefing.com

unlawflcombatnt

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___________
The economy needs balance between the "means of production" & "means of consumption."

[alvarezadams]

6. Don't forget

that part of the growth of the GDP is directly attributable to increased fuel prices. I don't know just what proportion of the growth is due to increased spending on energy but I'd wager that it is rather more than significant.

[Eurobabe]

10. Floundering for $100 Jack

The big question is: if the US tanks, will it take the global economy with it, or will other players step up to the plate?

[unlawflcombatnt]

11. My Opinion

In my opinion, if the U.S. economy tanks, it will take the rest of the world with it. Both China and Japan are highly dependent on exports to the U.S. Some smaller countries may be dependent as well. But China, with a $200 billion trade surplus with the U.S. will definitely take a huge hit if our economy tanks. Japan will also take a huge hit. And if the dollar sinks along with our economy, Japan will take an even bigger hit, since they have higher amount of U.S. dollars held in their reserves than any other country in the world (including the U.S.)

unlawflcombatnt

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___________
The economy needs balance between the "means of production" & "means of consumption."