2nd Quarter 2008 Economic Update

The 2nd quarter of 2008 ended with a slight economic rebound – an extremely lethargic one – that raises new fears of a recession.  The Commerce Department reported that the GDP increased at an annual rate of just 1.9 percent from April through June.  Although an improvement over the feeble 0.9 percent reported during the 1st quarter, the number was not as positive as the 2.4 percent increase that economists had predicted.

While any improvement is a welcome sign, the increase also indicates the fragile nature of the economy.  The numbers indicate that the recent income-tax rebate stimulus package did not work the magic that the government expected.  This news only leads to fears that the economy will remain unstable for the rest of the year, further curtailing capital expenditures by corporations and lengthening the credit crunch.

According to the federal government’s annualized revisions, the GDP actually contracted by 0.2 percent during the last three months of 2007.  That reflects the negative impact of the ongoing housing slump – the worst in 26 years – and cautious consumer spending because people are wary of purchasing big-ticket items just now.

It’s true that consumer spending rose 1.5 percent during the 2nd quarter, an improvement over the 0.9 percent reported during the 1st quarter.  This was the best showing since the 3rd quarter of 2007, when the economy was still performing strongly despite the housing slump.