Why US economy is poised to lift out of negative GDP
Economists see in second-quarter report some signs that the groundwork is laid for an upturn.
The pathway out of recession may be finally becoming clearer.Skip to next paragraph
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True, the economy was still contracting between April and June, as the Commerce Department reported Friday. The nation's gross domestic product (GDP), a broad measure of overall production of goods and services, declined in the second quarter by a 1 percent annual rate.
But the GDP report also suggests, say some economists, that the economy is poised to move into positive territory. Here's what they see as good omens.
• Businesses have let inventories fall so far that they are going to have to begin placing orders to fulfill customer demand.
In the last two quarters alone, inventories declined by more than $255 billion – a record pace.
“The amount drawn down has been awesome,” says economist Joel Naroff of Naroff Economic Advisors in Holland, Pa. “It’s as if business has said, ‘If they need it, we will go and get it, but we won’t have it around.’ ”
But at some point, businesses must replace inventory. “In terms of the potential for the economy, once demand picks up it has to trigger additional production,” says Mr. Naroff.
• Consumer spending fell in the second quarter, but anecdotal evidence indicates that may be starting to change.
The second-quarter drop was 1.2 percent, at an annual rate, compared with a gain of 0.6 percent in the first quarter.
But the “Cash for Clunkers” program, for one – in which owners of gas-guzzling, emissions-spewing vehicles get cash incentives to trade them in for new fuel sippers – appears to be successfully attracting customers to new-car lots. On Friday, the House of Representatives voted to add another $2 billion to the program.
Data show, too, that more people are starting to buy houses, especially foreclosed properties.
“If consumers are willing to buy big-ticket items, they may buy more of the little things that may make them feel happy,” says Naroff.
• Government spending is expected to continue. It was the only area of positive growth in the second quarter, and the stimulus legislative virtually assures that government will help prop up the economy.