JONATHAN COHN JULY 29, 2011
Please take your eyes off the stock market and focus them on this morning's report about gross domestic product. It's dismal. I'll let Catherine Rampbell, of the New York Times, explain:
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 1.9 percent . Both figures were well below economists’ expectations.
Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated. Indeed, the latest figures show that the nation’s economy is actually smaller than it was in 2007, when the Great Recession officially began.
“The word for this report is ‘shocking,’ ” said John Ryding, chief economist at RDQ Economics. “With slow growth, higher inflation and almost no consumer spending growth, it is very tough to find good news.”
Very tough indeed. And why is the economy growing so slowly? Consumer demand is flat. Governments are laying off workers. Businesses have plenty of cash but are afraid to spend it because they don't see demand for more goods. Yes, you've heard this story before.
Meantime, in our nation's capital, Democrats and Republicans are debating whether to reduce deficits in ways that will merely shrink the government or decimate it. Although negotiations are very fluid, the spending cuts will likely begin right away, sucking more money out of the economy at a time when we should be putting more government money into it. In other words, we are talking about enacting economic policies that could actually slow down the economy even more.
But maybe that conversation can change, just a little bit. As recently as a week ago, when President Obama and House Speaker John Boehner were discussing a compromise deal on deficit reduction, they had agreed in principle to include an extension of unemployment insurance and a renewal of last year's payroll tax break. The boost to the economy would have been relatively modest -- maybe a million jobs, give or take. But at this point it'd be a lot better than nothing. Neither the Reid nor the Boehner proposals have these measures. And, last I heard, nobody was trying to restore them. But the debate isn't quite over yet. As Adam Serwer writes today, "I know that additional stimulus measures would make any compromise even less likely to pass the House, but given the state of the economy, it’s crazy for Dems not to try."
Update: I originally said we're talking about policies that could prolong the recession. But, of course, we're not in a recession right now. It just feels like it.