GDP Growth Stalls on Lack of Consumer Spending

How soon will the economy recover, and are we headed for a double-dip recession? The answers to both questions became more nuanced—and possibly worrisome Friday—when the Commerce Department reported that the country’s economic growth had slowed this quarter, largely due to consumers’ reluctance to spend money.

The country’s gross domestic product increased just 2.4 percent for the months of April, May, and June, compared with the first quarter’s GDP increase of 3.7 percent. Consumer spending rose 1.6 percent, compared with the 1.9 percent increase in the first quarter: a move that The Washington Post’s Neil Irwin said reflects “continued strains on Americans who face high unemployment and an overhang of debt from years past.”

The bright spots in the quarterly report were businesses that spent money on software and equipment and federal-government spending, which rose 9.2 percent. 

This news arrives against the backdrop of a national unemployment rate that stubbornly remains at 9.5 percent, and stories of businesses that have recovered nicely from the recession but that continue to hoard cash in lieu of hiring workers or expanding.

Economists’ reactions to the news varied in a way that seemed to depend on their dispositions (optimistic versus cynical). The Wall Street Journal offered a nice roundup of their takes on the GDP numbers, which range from notes on the sustainability of the recovery to “constructive takeaways.” 

The bad GDP news also comes in the midst of troubling concerns about deflation. Federal Reserve Bank of St. Louis President James Bullard said Friday that he worried that the U.S. economy could fall into a Japanese-style deflation over the next several years. And, MSNBC reported that the markets reacted poorly to the GDP news with stock futures falling. 

These data points will make the release of the new unemployment numbers next Friday, Aug. 6, a much-anticipated event and all the more important for the millions of unemployed Americans.