Downward growth trends
After growing at a very sluggish annual rate of 0.6 percent during the first quarter, the U.S. economy rebounded strongly during the April-June period, expanding at an annual rate of 3.4 percent. However, the biggest revelations in the Commerce Department’s July 27 report were the rather large downward revisions in the growth rates during 2004, 2005 and 2006.
The second-quarter rebound was led by strong, but uneven, growth in business investment, which expanded by 8.1 percent compared to a lackluster 2.1 percent during the first quarter. Spending on business structures (plants, mines, warehouses, office buildings, shopping malls, etc.) increased at an annual rate of 22.1 percent, the biggest advance in that category since the second quarter of 1994. However, business spending on equipment and software, which was actually lower in the first quarter of 2007 than it was in the first quarter of 2006, increased by a disappointing 2.3 percent last quarter.
Improvement in the nation’s trade deficit also contributed to second-quarter growth as exports of goods and services increased by a solid 6.4 percent, while imports declined by 2.6 percent. Rising government spending, especially on national defense, also contributed to second-quarter growth. The increase in consumption spending slowed considerably during the April-June period, growing by only 1.3 percent after rising by an average of 3.8 percent during the previous two quarters. The deflating housing bubble may be finally affecting personal consumption. Speaking of housing, residential investment, which had declined by 16.5 percent during the previous four quarters, fell at an annual rate of 9.3 percent during the second quarter.
As noted, the annual revisions for the 2004-2006 period took a major toll on previously reported economic growth. Specifically, economic growth was revised downward from 3.4 percent to 3.1 percent during 2004; from 3.1 percent to 2.9 percent during 2005; and from 3.1 percent to 2.6 percent during 2006. The net effect was to reduce average annual economic growth during the 2004-2006 period from 3.23 percent to 2.87 percent. That qualifies as a statistically significant haircut. Since the recession ended during the fourth quarter of 2001, the average annual growth rate during the Bush expansion is a historically disappointing 2.75 percent.
Downwardly revised economic growth during the second half of 2006 (an annualized 1.6 percent) proved to be significantly slower than earlier reported (2.25 percent). Thus, during the previous three quarters (July 2006-March 2007), the economy grew at an annual rate of about 1.25 percent. During the past year, ending with the second-quarter rebound, the U.S. economy has expanded by about 1.75 percent. That’s lousy.
Since the Bush-Cheney administration entered office, the U.S. economy has expanded by an average annual rate of 2.36 percent. By contrast, the economy during the Clinton-Gore administration grew at an average annual rate of 3.6 percent, which is more than 50 percent faster than the Bush-Cheney rate.
Since Mr. Bush entered office, the national debt has increased by more than $3.2 trillion. During the last six and a half years, the national debt increased by nearly 60 percent, rising from $5.66 trillion to $8.87 trillion. What did those trillions buy for the U.S. economy? A puny growth rate of 2.36 percent (January 2001 through June 2007) and (assuming an average interest rate of 5 percent) more than $150 billion in additional annual interest payments forever.