Second Quarter GDP Shows Economy Slowing To Near-Recession Status

And you thought the bad economic news was over.

The Commerce Department’s first take on the Gross Domestic Product figures for the second quarter, which are likely to be revised downward in the future, are not good at all:

WASHINGTON — The United States economy has slowed considerably this year from a year ago, according to a report from the Commerce Department released on Friday.

The country’s gross domestic product, a broad measure of the goods and services produced across the economy, grew at an annual rate of 1.3 percent in the second quarter, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.7 percent. Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated.

The news comes as Congress is debating how to put the nation on a more sustainable fiscal path, with measures that some economists worry could further slow the recovery and even throw the economy back into recession.

The latest numbers were especially disappointing precisely because the economy had shrunk so much during the recession. Usually a sharp recession is followed by a sharp recovery, meaning a recovery growth rate that is far faster than the long-term average growth rate; this time around, though, output is growing at only about a third the average rate seen in the 60 years preceding the Great Recession. As a result, the country’s output is far below its potential.

Particularly distressing is that consumer spending — which, alongside housing, usually leads the way in a recovery — has been extraordinarily weak in recent quarters. Inflation-adjusted consumer spending in the second quarter barely budged, increasing just 0.1 percent.

The economy’s slow growth rate is partly responsible for stubbornly high joblessness across the country. As of June, 14 million Americans were actively looking for work, and the average duration of unemployment has been reaching record highs month after month. Businesses are sitting on a lot of cash, but are still reluctant to hire because there is so much uncertainty about the future of the economy.

Slow economic growth takes not only a human toll, but a fiscal one as well. Tepid output increases mean slow growth in the tax revenue needed to pay down the nation’s debt.

Washington, therefore, has a delicate balancing act in its current debt ceiling debates. Given the unsustainable debt trajectory that the economy is on, Congress needs to impose greater fiscal discipline. But imposing too much too soon could be self-defeating by weakening growth so greatly that tax revenue falls and requires the country to borrow even more.

As I type this, trading on Wall Street has just started and stock indexes are down across the board, both in reaction to this number and the failure of the debt ceiling negotiations on Capitol Hill. They can’t really be surprised about this, though. After three months of bad employment numbers and yesterday’s Durable Goods numbers, it was pretty clear that we were headed for a bad report this morning, but perhaps not this bad. At the moment, there doesn’t seem to be any real prospect that the third quarter is going to be any better than the first or second, which means we’re likely to still see slow job growth and continued economic pessimism.

Politically, this all spells trouble for the President, I think. Without strong and sustained economic growth, the economic picture a year from now as we head into the 2012 elections and, as Philip Klein notes, history is not on the President’s side on this:

In a typically economic recovery, GDP growth is supposed to be a lot higher, because comparisons to the prior period are easier. For instance, during the comparable quarters of the Reagan presidency in 1983, the recovering economy grew at 5.1 percent and 9.3 percent, respectively.

Needless to say, this is more bad news for President Obama’s reelection chances. Also, with the economy this weak, one wonders if this will put the payroll tax cut  extension back in play as part of the debt limit negotiations end game.

More importantly, with the economy this weak one wonders how the debt kamikazes and those playing games with the debt ceiling extension on Capitol Hill can look at themselves in the mirror this morning.


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Doug Mataconis
About Doug Mataconis
Doug Mataconis held a B.A. in Political Science from Rutgers University and J.D. from George Mason University School of Law. He joined the staff of OTB in May 2010 and contributed a staggering 16,483 posts before his retirement in January 2020. He passed far too young in July 2021.


  1. john personna says:

    The really strange thing is that the Consumer Metrics Institute shows a sudden break of good news.

    It’s possible that both are true, and the long lag in GDP reporting is missing the recent turn-around.

    So … are all you guys shopping? I spent a lot on backpacking gear this year (Western Mountaineering Ultralight, etc.)…

  2. hey norm says:

    To me this seems like the perfect time to reduce demand by slashing spending.
    You can’t make up how damageing the Tea Stain is being to this country.

  3. hey norm says:

    Let’s be clear about something – the Reagan economy was not comparable to this economy.
    And Reagan did not have to contend with Tea Stains intent on crashing the world economy.

  4. Gerry W. says:

    @john personna:

    Did you check where your products were made? If they were made in another country, what impact will that have on our economy? (Not blaming you, I buy and the products are made overseas also) Has our dynamics changed?

  5. john personna says:

    @Gerry W.:

    Actually, the ultralight backpacking gear tends to be near craft-made in the US. ULA is one guy, with a few seamstresses in Utah. I think the Trail Designs guys make things themselves. That Western Mountaineering bag is US made. Of course it’s premium gear. When you are buying 850 down, the sewing becomes less an issue.

    Some of my stuff does come from Japan. Titanium, etc.

    … so I guess I lucked into a US-centric recreation this time.

  6. john personna says:

    (Heh, too many links in my response to Gerry. Please un-moderate.)

  7. markm says:

    after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.7 percent

    That’s one hell of a revision, no?.
    Goin’ negative with next month’s revision i’d bet.

  8. MBunge says:

    Let’s step beyond the question of whether this is good for Obama’s re-election. If Obama goes down, what is his replacement going to do about the economy. Even if it’s Romney, an Obama defeat likely means he’s working with a GOP congress. What exactly is that gang going to do to spur GDP growth, except cut taxes and maybe start wars in a couple more places?


  9. john personna says:

    You know, I’ve actually thought about the backpacking as an example of new-millennium US manufacturing. What you’ve got, kind of like the craft electronics, is a segment where you have to be close to a sub-culture to design the right product. And in that sub-culture, price sensitivity is not that extreme.

    Of course, for it to total up to a lot of employment, we should all seek out and buy products in these strange, niche, market segments.

  10. john personna says:


    Goin’ negative with next month’s revision i’d bet.

    Consumer Metrics has been really good at leading the GDP curve. That is, until something strange happened in September of last year. GDP did not fall as much as it “should” have.

  11. Liberty60 says:

    News item-
    FAA ShutDown Results in Loss of 70,000 Contracting Jobs

    Oh, but I am sure that if we just lay off a few hundred thousand more employees, and shut down more govt agencies, and cancel a few thousand more infrastructure projects, and oh yes, more tax cuts for the Job Creators, the economy will rebound!

    Think of all the marvelous career opportunities that will open up in fueling private jets, washing and waxing Bentleys and limousines, not to mention the massive hiring of maids, nannies and assorted servants once the Job Creators are flush with cash.

  12. ponce says:

    Time to bribe some Chinese entrepreneurs to move here…ours suck.

  13. bandit says:

    maybe start wars in a couple more places?

    The current idiot is doing a pretty good job at that.

  14. steve says:

    This is a pretty typical recovery after a banking crisis. We have decent data on this so it should not be a surprise. People need to stop comparing this to a typical recovery.


  15. Gerry W. says:


    Banking crisis or not, in my town and in the Midwest it is globalization and the loss of jobs and nothing to replace those jobs.

  16. Ron Beasley says:

    What no one is willing to admit is that we are in new territory here. With oil between $90 and $100 bbl growth will be anemic. Between 100 and 110 it will be stagnant and above 110 it will be negative. The world economy is going to be reinvented whether we like it or not.

  17. Ben Wolf says:

    We have $50 trillion in private debt. We can either have a debt jubilee, or a couple of decades of painful deleveraging. Either way, the economy cannot recover until the debt is put to rest.

    Quite simply we allowed banks to create endless supplies of money in the form of a credit boom in the ‘90s and 2000s, credit that should never have been extended in the first place. Now there’s no money flowing because the middle class has been buried under it.

    And yet we don’t hear a single word on this issue from our “leaders”.

  18. Anonne says:

    Double dip, here we come…

  19. Loviatar says:


    I prefer the term Lesser Depression.