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Home Publications Blogs CEPR Blog GDP Growth Slows as Economy Stagnates

GDP Growth Slows as Economy Stagnates

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Written by Dean Baker   
Friday, 29 July 2011 11:00

Weak consumption growth and shrinking government spending held GDP growth to 1.3 percent in the last quarter, according to the Bureau of Economic Analysis' latest report on the Gross Domestic Product. Consumption grew at just a 0.1 percent annual rate in the second quarter, while government spending shrank at a 1.1 percent rate. The report also revised first-quarter GDP growth down to just 0.4 percent from a previously reported 1.9 percent. All these numbers indicate that the economy is growing far below the 2.5 percent rate needed just to keep the unemployment rate from rising.

The overall picture in the latest report is that the economy is stagnating, with revisions suggesting the stimulus worked exactly as predicted. The economy shrank at a 7.8 percent annual rate in the fourth quarter of 2008 and first quarter of 2009 compared with a previously reported 5.9 percent annual rate. The decline in the second quarter was just 0.7 percent, followed by growth in the third quarter of 1.7 percent, suggesting that the stimulus was effective in turning the quarter around. The downward revision to the first-quarter data coupled with the revision of the fourth-quarter growth to 2.3 percent from 3.1 percent suggests that the winding down of the stimulus has seriously dampened growth.

For more, read our latest GDP Byte.

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