GDP Falls 1%.....Could be worse, all things considered

Actually, this is a pretty good number considering we are rebounding from a negative 6.4% number last quarter. Strong government spending, and an improving trade balance are appearing to dampen the slowdown, but corporate reluctance to make new investments coupled with dramatic inventory reductions, and obviously the cutbacks in consumer discretionary spending (remember that consumer spending is over 70% of GDP) continue to limit growth. As a consumer, it is becoming increasingly noticeable how much less "stuff" is on the shelves, which seems appropriate given the decrease in traffic.  I enjoy checking out the latest gadgets at Best Buy, and cant remember a time when it was so easy to get the attention of one of their in-house sales "geeks".

I am reminded of John Mauldin's frequently referenced chart illustrating the contribution of mortgage equity withdrawals to GDP.  This continues to worry me that this will be a very long "muddle through" economy.  On a brighter note, even as home values have declined, some consumers do have access to home equity, and credit is beginning to flow again. Hopefully some American ingenuity, hard work, and optimism will return the country to growth.

Here are some excerpts from the release:

Real gross domestic product -- the output of goods and services produced by labor and property
located in the United States -- decreased at an annual rate of 1.0 percent in the second quarter of 2009,(that is, from the first quarter to the second), according to the "advance" estimate released by the Bureau

of Economic Analysis. In the first quarter, real GDP decreased 6.4 percent.The decrease in real GDP in the second quarter primarily reflected negative contributions from nonresidential fixed investment, personal consumption expenditures (PCE), residential fixed investment,private inventory investment, and exports that were partly offset by positive contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the

calculation of GDP, decreased. The much smaller decrease in real GDP in the second quarter than in the first primarily reflected much smaller decreases in nonresidential fixed investment, in exports, and in private inventory investment, upturns in federal government spending and in state and local government spending, and a smaller decrease in residential fixed investment that were partly offset by a much smaller decrease in imports and a downturn in PCE.