US GDP Grows 2.4% in Second Quarter

The US Commerce Department released the GDP figures for second quarter 2010, and the US economy grew at a reasonably healthy 2.4%. The first quarter number was revised upwards to 3.7%. Now any slowing of growth is a negative. Yet, Wall Street and the Republicans decided this was even worse news because analysts had expected a 2.6% growth rate. In fact, it is all pretty uplifting.

Hidden in the report are facts that show just how good economic conditions have become. From fourth quarter 2007 to second quarter 2009, the US economy shrank 4.1%, a change from the initially calculated 3.7%. In the last four quarters, growth has been positive and strong relative to a 4.1% contraction. Household spending, which is 70% of the economy, was off 1.2% in 2009, double the previously supplied result. In first quarter 2010, it was up 1.9% and in the second quarter, it was up 1.6%.

Weighing on the growth figures for the second quarter was a 28.8% rise in imports, which overwhelmed the 10.3% rise in US exports. Those who calculate these things suggest that held back growth by 2.78%, the most since third quarter 1982. That quarter also was the bottom of the Reagan Recession. One may drawn whatever conclusions from that one wishes.

On the plus side of the ledger, business investment was up 17% in the second quarter, the biggest rise since 2006's first quarter, and well up from the 7.8% increase in the first quarter of this year. Reuters reported, "Spending on equipment and software was the largest since the third quarter of 1997, while investment on structures rose for the first time since the third quarter of 2008, likely boosted by a rise in oil and gas drilling." Well, perhaps not off the coast of Louisiana.

Moreover, new home construction shot up 27.9% in the second quarter. That's the biggest increase since the third quarter of 1983, and it reverses the first quarter decline of 12.3%. Industry experts suggest that this activity came as the result of the home-buyer tax credit that recently expired. If so, third quarter figures will look pretty weak in comparison.

The upshot is the US economy is growing and at a fair clip. The problem is people in the market and on Main Street are still shell-shocked from the economic meltdown. Growth could be 5%, and it would still fail to satisfy. The economy lost 8.4 million jobs in the recession that began in December 2007. This year, it has created 593,000 jobs. Simple subtraction explains why the good news disappointed so many.

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