The great recession was worse than previously reported, but it's now running out of steam.
After a string of three quarters showing serious declines, America's economic output fell by a smaller amount this spring. That is fueling hopes that economic growth will return this quarter, which began July 1.
The second quarter's output – or gross domestic product (GDP) – fell 1.0 percent on an inflation-adjusted annual basis, according to a Commerce Department report released Friday. But that was far less than the comparable 5.4 percent plunge in the fourth quarter of 2008 or the even steeper 6.4 percent drop in the first quarter of 2009.
In a major overhaul, the Commerce Department revised years' worth of GDP data, including the most recent quarters, which showed that the overall downturn was worse. That made it official: The great recession is not only America's longest slump since the 1930s, it's also the most severe. Not since 1938 – and perhaps not since 1933 (the data for that period aren't broken down in quarters, so it's hard to tell) – has the US economy contracted so sharply.
The good news is that the contraction now appears to be easing.
"The recession is running its course," says Richard Moody, chief economist of Forward Capital Research in Austin, Texas. Sometime this quarter it will end, and the economy will begin to grow, he adds. But "it's going to be tough sledding in 2010 because, even though we've hit bottom, the upside potential is limited."
One reason: Pay and benefits for US workers rose only 1.5 percent for the 12 months ended in June, the Commerce Department said in a separate report. That's the smallest gain since it began tracking the number in 1980 – and doesn't even take inflation into account.
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