Economic festering

US GDP: The US economic recovery isn’t showing any real bounce. GDP grew at an annualised 2.4 per cent, but inventory buildup, government spending and a tax-driven housing blip produced most of that. Even with no double-dip downturn currently in sight, growth is too slow to help the unemployed much.

Details of the GDP report suggest economic sluggishness will persist. More than 1 percentage point of growth came from inventory accumulation, which isn’t sustainable once stocks regain a steady-state level. Deficit-financed government spending accounted for another 0.7 percentage points of growth, while 0.6 percentage points came from residential investment, fuelled by a tax break that expired in April.

None of those factors is likely to continue supporting GDP expansion reliably in coming quarters, and precious little growth came from other parts of the economy. Put another way, real final sales — a better indication of the economy’s underlying trajectory — increased at an annual rate of only 1.3 per cent.

On a positive side, non-residential fixed investment, the engine of corporate growth, rose at 17 per cent annual rate, but it remains far below its 2008 peak. Trade, whose decline in 2009 had been worrisome, increased sharply — although because the increase in imports exceeded that in exports, this worsened US payments deficit. Weak personal outlays, up at an annual rate of only 1.4 per cent in the quarter, slowed GDP growth but at least improved the personal savings rate from 5.5 per cent to 6.2 per cent.

If some growth factors just don’t last, the US unemployment rate — last reported at 9.5 percent for June — could rise. That’s in contrast to the steep recovery usually to be expected after a deep recession. One possible explanation is that the exceptional fiscal and monetary stimulus injected in 2009, while perhaps making the recession shallower, has delayed recovery by crowding out small businesses from capital markets. Uncertainty resulting from major changes in financial and healthcare legislation may also be damping activity. Either way, a persistently sub-par recovery could end up feeling nearly as painful as a deeper but quicker double-dip.