Slugged by a Sluggish Economy

Last week's economic data releases, the GDP numbers from the BEA, and unemployment from the BLS, were consistent with an economy growing sluggishly (and thereby skirting an official "recession") but too slowly to keep unemployment from rising.

Real GDP growth came in at an annual growth rate of 1.9% for the second quarter (April-June), and the unemployment rate increased again, to 5.7% for July (up from 5.5% in June):
(GDP growth: blue line, left scale; unemployment: red line, right scale).

In the second quarter, GDP growth was driven by increases in exports (9% annual rate) and decreases in imports (-6.6%); hooray for the declining dollar! An increase in federal government purchases (6.7%) also gave a boost. New housing construction (a.k.a. "residential fixed investment," -15.6%) continued to plummet, and, while overall consumption was up, durable goods expenditures fell at a 3% annual rate (as reflected by the car industry's woes). As James Hamilton noted at Econbrowser, one silver lining in the report was a negative contribution from "inventory investment," which suggests firms have less stuff laying around and will need to produce more in the future.

The GDP release included the "annual revisions": now the BEA estimates that growth was indeed negative during the fourth quarter of last year (-0.2% vs. previously estimated 0.6% annual rate; this is not evident on the graph above since it plots % change from 1 year ago) and overall growth for 2007 is now pegged at 2.0% (previous estimate: 2.2%).

As for the labor market, this NY Times story about workers who are reduced from full- to part-time reminds us the unemployment rate does not tell the whole story. Brad DeLong recommends another series, "U-6 Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all marginally attached workers," which the BLS explains:

Marginally attached workers are persons who currently are neither working nor looking for work but indicate that they want and are available for a job and have looked for work sometime in the recent past. Discouraged workers, a subset of the marginally attached, have given a job-market related reason for not currently looking for a job. Persons employed part time for economic reasons are those who want and are available for full-time work but have had to settle for a part-time schedule.

Based on this measure (above), which rose to 10.3% in July, DeLong calls a "recession."