The World's Largest Economy Contracts Less than Expected in the Second Quarter!

The U.S. economy continued to contract during the second quarter of this year for a fourth consecutive quarter, however the pace of contract eased drastically from that of the first quarter, as conditions started to improve and several sectors around the economy started to show signs of stabilization.

The U.S. Commerce Department released the Gross Domestic Product Preliminary estimate for the second quarter of this year, GDP contracted by 1.0% inline with the prior contraction of 1.0% reported in the Advanced estimate and better than median estimates of a 1.5% contraction, while the GDP Price index was flat in the second quarter marking a downward revision from the prior estimate of 0.2% and below median estimates.

Moreover, personal consumption declined in the second quarter by 1.0% better than the prior and expected estimates of -1.2% and -1.3% respectively, while Core PCE, the Feds’ favorite indicator for inflation rose in the second quarter by 2.0% inline with the prior and expected estimates.

The economy contracted by 3.9% on a yearly basis, as personal consumption shed 0.69% from GDP, while gross private domestic investments shed 3.20% from GDP, meanwhile the housing sector continued to cut from growth after shedding 0.66% from GDP, inventories shed 1.39% from growth, while net exports contributed with 1.60% to GDP, and governmental consumption added 1.27% to GDP.

The U.S. economy is still on the receiving end of this crisis, however signs of improvement continue to show over the outlook, which suggests that the economy will be able to return back to growth over the course of the third and fourth quarters of this year, however economic growth should remain subdued over the upcoming period, as conditions are still rather challenging.

Rising unemployment, tightened credit conditions, and diminishing households’ wealth continue to weigh down on economic growth in the world’s largest economy, and accordingly the economy is still expected to continue its weakness, as the recovery process just started and it will take some time before the economy returns back to its long term growth potentials.

The U.S. economy will continue recovering, however the recovery will be rather slow and gradual, as economic activity though improving recently yet it needs time, especially as unemployment is still elevated, unemployment is now standing at 9.4% and will probably continue to rise over the course of this year.

Unemployment continue to weigh down on personal income and accordingly consumer spending, and knowing that consumer spending accounts for nearly 2/3 of economic activity in the United States, we should expect economic activity to remain weak until companies start hiring again.

The U.S. Commerce Department released the Initial Jobless Claims for the week ending August 22nd, jobless claims dropped by 10,000 to 570,000 from the prior revised estimate of 580,000 and worse than median estimates of 565,000, while continuing claims dropped to 6.133 million from the prior revised estimate of 6.252 million.

The labor market is still on the receiving end of the worst recession since WWII, as this is the first time the economy had contracted over four consecutive quarters ever since records began back in 1947, and this alone signals that this recession is not your normal recession but was rather close to a depression and the only thing that prevented that from happening was the extreme and rather ingenious measures adopted by the Federal Reserve Bank, so we should give them and their Chairman Ben S. Bernanke the credit they deserve…

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