The Great Recession was officially over in June 2009, and we now know there won’t be a ‘double-dip’ recession—since the economy has been growing since then. While the debate rages on how much more to stimulate demand, there is a consensus that the third quarter will show higher growth—more than the final 1.7 percent growth rate estimate of Q2.
Buried in the second quarter statistics was that so-called final demand of domestic purchases rose 4.3 percent, though much of it was from imports. That is the total amount bought by U.S. citizens, and shows consumer spending is recovering. But domestic durable goods and industrial production are also rising, which feeds exports and should boost GDP growth further.
Though new factory orders for durable goods in August dipped 1.3 percent, following a 0.7 percent rebound in July, new orders excluding highly volatile transportation orders gained a large 2.0 percent. This series has risen in three of the last four months and in five of the last seven.
And the consumer made a comeback in August-in both income and spending. Despite sluggish job growth, the combination of modest growth in average hourly earnings, private employment, and steady or firming weekly hours is gradually boosting wages and salaries-at least in the private sector. Personal income in August advanced a healthy 0.5 percent, following a 0.2 percent rise the month before. This report is not stellar but it is welcome news that the consumer sector bounced back and should help support overall economic growth.
And the Fed still has plenty of room to continue with quantitative easing as core inflation is still below the Fed's implicit target range. It was an 18-month recession, as we said last week, the longest in fact since the 1929-33 first Great Depression that lasted 43 months. So Fed policy has to put more money in consumers’ pockets—because the Middle Class lost much of its earning power over the last 3 decades.
There are many reasons for this, as Clinton Labor Secretary Robert Reich catalogues in his new book, “Aftershock”. With wide-open globalization of labor markets, it is more profitable to ship some jobs overseas these days. This benefits CEOs, their shareholders, and the financial institutions who lend and invest in them, but not domestic workers. It is primarily why the investor class of top 1 percent income-earners now earn 23.5 percent of total household income, just like in 1929.
The result is that corporate profits in the second quarter are soaring, up an annualized 3.8 percent, following a 54.1 percent surge the prior quarter. Profits are up 38.7 percent on a year-on-year basis, compared to up 50.8 percent in the first quarter.
The latest personal income report clearly is good news as consumers are seeing income growth-especially in the private sector. And spending continues to be moderately healthy. Thus far, the numbers indicate a strengthening in third quarter GDP from the anemic second quarter pace.
Harlan Green © 2010
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