Economy Grew In Second Quarter Amid Looming Recession

The real growth in the U.S. economy accelerated in the second quarter as the real gross domestic product (GDP) increased at a 1.9 percent annual rate, the Bureau of Economic Analysis (BEA) at the Commerce Department, reported on Thursday, July 31, 2008. The rate was up from 0.9 percent in the first quarter but less than economists were looking for. The economy was boosted by $75 billion in tax-rebate checks from Washington and big drop in imports. The crumbling housing market and by a huge drop in inventories held back the economy growth.

Government revisions showed the economy actually shrank in the final quarter of 2007 at a 0.2 percent annual rate before barely edging up at the start of this year. It was the first quarterly plunge for the GDP since the third quarter of 2001 amid the last official recession when GDP shrank at a 1.4 percent rate.

Recession fear keeps looming as more job cuts are expected in coming months and Americans may cut back on spending. A growing number of analysts fear that the economy will slip into reverse again at the end of this year, as any effects of the tax rebates fade. There are also concerns exports could weaken as other countries' economies slow down and overseas demand weaken. A new poll the Pew Research Center released Thursday showed about three in four Americans think the economy is in a recession.

By the most common definition, the decline in GDP in the fourth quarter of 2007 was not the beginning of a recession? As a general rule, the economy is in recession when it shows two consecutive quarters of contraction. That didn't happen in the last recession in 2001, which was declared a recession by another reading pronounced by a panel of academics at the National Bureau of Economic Research committee (NBER committee), that usually comes well after the fact. The National Bureau of Economic Research’s Business Cycle Dating Committee, the nation’s arbiter of recessions, has enough latitude to make recession call. GDP is among five key indicators the committee follows to determine a recession, which it defines as “a significant decline in economic activity spread across the economy, lasting more than a few months.”

The department also issued benchmark revisions for the three-year period 2005-2007, which showed growth was weaker in each year than previously thought. GDP grew 2 percent in 2007 instead of 2.2 percent, 2.8 percent instead of 2.9 percent in 2006 and 2.9 percent rather than 3.1 percent in 2005.

Chart: Wall Street Journal Blogs