Wednesday, July 25, 2012

How Bad Was The Economy In the 2nd Quarter?

On July 27th, the federal government will release the initial data that reflects the economic activity of this country for the second quarter of this year.  That data, the growth in Gross Domestic Product or GDP, was originally expected to be about 2% in growth.  But, in each of the 3 months that comprise the 2nd quarter, retails sales activity  fell consecutively and, unexpectedly.   A fact that hasn't happened since 2008; at the height of the so-called Great Recession.  Now, economists have lowered their estimates; with economic growth slowing to between 1 and 1-1/2 percent.  But, I think they're still wrong; and, it all has to do with high gasoline prices.

In two of the three months that made up the second quarter, April and May,  oil prices were rising rapidly; with many cities seeing $4+ gasoline.  The reason that this is important to note is because gasoline prices are part of the overall retail sales numbers.  For that reason, higher gas prices have always helped to push up the retail sales data.  But, instead, retail sales fell in both April and May.  So, this means that those high gasoline prices were actually making those negative retail sales numbers look a lot better than they really were, and, I don't think economists are taking this into consideration when estimating the growth in GDP.  For that reason, it is highly possible that 2nd quarter GDP growth will be lower than 1%.  If so, this would be a really horrible number at near-recession levels.   Of course, the numbers could wind up being better than expected since the group putting the numbers out, the Bureau of Labor Statistics (BLS), reports to Obama.  After all, the BLS will have two more monthly attempts to get the numbers right.

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