We have new GDP numbers from the Department of Commerce’s Bureau of Economic Analysis.
- U.S. real Gross Domestic Product grew at an annual 1.6% rate in the second quarter of this year.
- This is the second estimate for Q2 GDP. The first, released at the end of July, was +2.4%. This is therefore a downward revision, but we’re still growing, albeit slowly.
- The economy is growing more slowly than it did in Q1, when it was growing at a 3.7% annual rate.
As a rule of thumb, when the economy is operating near full employment, the U.S. can sustain a long-term real GDP growth rate of between 3 and 3.5 percent. When we’re operating way below capacity, as we are now, in a strong recovery you would expect and hope that we’d grow much faster than that. This is not yet a strong recovery.
I want to use this as an opportunity to explain an arithmetic point about GDP growth rates and stimulus. The conclusion sounds simple but when they see it in the numbers a lot of people get confused: When stimulus ends, the GDP growth rate goes down.