Still Bleak, But GDP Trends Indicate the Worst is Over
In the final estimate for the first quarter of 2009, real (inflation-adjusted) GDP fell 5.5%, at a seasonally adjusted annual rate. However, this decline was less than the estimate of a 5.7% drop reported by the Bureau of Economic Analysis in its preliminary report, or the 6.1% decline in its advance report—which is notoriously inaccurate, due to the large gaps in the data when information for the advance report is compiled. The estimates of real GDP growth for the fourth quarter of 2008 were declines of 3.8% (advance), 6.2% (preliminary) and 6.3% (final).  Back-to-back quarters of negative growth are painful indicators of an economy in recession. Nonetheless, the trend indicates that the worst is over, that the decline is slowing ,and that we will see growth re-emerge.

The unemployment rate rose from 9.4% in May to 9.5% in June. Ironically, when the economy begins producing jobs again, the unemployment rate is likely to rise as people who had left the labor market out of frustration start seeking jobs again. NAHB expects the unemployment rate to top out near 10% early next year. NAHB also expects the economy to expand at an average annual rate of 1.5% in the second half of 2009. To date, a relatively small amount of the first stimulus package has been spent. About 11% of the $789 billion package went into the economy by the end of June, and more of that money is expected to flow into the economy as summer road projects ramp up.

By the end of the year, about $250 billion of the total package should be spent. Typically, it takes six to nine months for the effects of government spending and tax cuts to spread throughout the economy. Meanwhile, monetary policy remains expansive as the Federal Reserve works to offset the contractionary forces of the financial markets problems, and there is some evidence that parts of the financial sector are returning to normal. As the need for the Fed’s support in these areas has abated, however, the Fed has pulled back, reducing some of the stimulus of its actions.  

Even as the problems in the financial markets ease a bit, lending standards are tightening. Companies with excellent credit histories still are facing difficulties in obtaining loans. They are facing onerous terms or other requirements, or being denied loans outright. This is acting as a drag on the economy and slowing any recovery. [ return to top ]