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GDP drops, manufacturing takes nosedive

The Department of Commerce released its National Income and Product Accounts report this morning which showed the economy declining much faster than analysts had expected.

Despite steady government spending, the second quarter Gross Domestic Product (GDP) came in much lower than Q1 and strongly down from analysts expectations. The first quarter GDP came in at 2.4% growth and the second quarter was forecast to slow slightly to 1.7%. Instead, the actual data shows the economy coming startlingly-close to recession at 1.3% for the second quarter.

Federal government consumption spending stayed nearly flat only decreasing .2% in Q2. The drop in economic activity is solely due to a decline in private sector output – the driver of any turnaround in the economic and jobs pictures.

Personal spending slowed almost 40% from the first quarter and durable goods reversed from growth to recession in today’s report. Durable goods orders crashed from 11.5% increase in Q1 to a decrease of .2% in Q2 – a decline of 11.7% quarter-over-quarter. Q2’s decline is the largest in 3 1/2 years and one not seen since the previous recession.

Nonresidential fixed investments also showed significant slowing in the second quarter. Losing almost 50% growth, the indicator slowed from 12.9% increase in Q1 to 7.5% in the second quarter. This indicates the business are not able to expand into larger or more numerous facilities.

Corporate profits before taxes decreased $16.3 billion in the second quarter with the financial industry being hit hardest. Domestic profits of financial corporations decreased $39.7 billion in Q2 after having dropped $12.7 billion in the first quarter.

The overall picture is one of a rapidly decelerating economy. If GDP drops another 1.1% in Q3, the economy will be in stagnation. Considering the rate of change, a continuation in the current trend could see the country in recession by the end of Q3.

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