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Why we're headed for a double dip

By   Follow Me on Twitter     Message Richard Clark     Permalink
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(Article changed on June 29, 2013 at 00:41)

While mainstream economists were and are quick to believe that the US economy is growing, as the key stock indices suggest to them, the fact is . . that it isn't.   After the first estimates of gross domestic product (GDP) for the U.S. economy came out, a wave of optimism struck and stock markets rallied.   It seemed as if everything was headed in the right direction.

 

Not so.

 

In its third and final revision of GDP, the Bureau of Economic Analysis (BEA) threw cold water on all that.   It reported that the U.S. economy grew at just 1.8% in the first quarter of 2013 from the fourth quarter of 2012--that's 25% lower than its previous (second) estimates, when the BEA said the U.S. economy grew 2.4%.   Even worse, it's _28%_ lower from its _first_ estimate of 2.5%. (Source: Bureau of Economic Analysis, June 26, 2013.)

 

The primary reasons behind the decline in GDP growth are that domestic consumer spending and exports from the U.S. declined.

 

Going forward, as wages stagnate and shrink for most consumers,   and interest rates rise, it looks like continued dismal consumer spending for the U.S. economy.

 

Economics 101:   When interest rates increase, consumer spending declines, because it costs the consumer more to borrow, so they step back from buying.

 

Problem is, consumer spending is the backbone of any growth in the U.S. economy. If it decreases, our economic growth prospects begin to pale.

 

Reality Check:

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Several years after receiving my M.A. in social science (interdisciplinary studies) I was an instructor at S.F. State University for a year, but then went back to designing automated machinery, and then tech writing, in Silicon Valley. I've (more...)
 

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