Second quarter real GDP was reported to have increased at a 2.4% rate so that the four quarter growth was 3.2%. As the chart shows this is a very weak first year of recovery compared to the old historic norm before the “great moderation” emerged when growth averaged 7.6% in the first year of recovery. But it was stronger than the 2.6% and 1.9%
increase in the weak recoveries of 1991 and 2001.

This leaves real GDP 1.1% below the prior peak in the fourth quarter of 2007. To regain the prior peak in the third quarter real GDP would have to grow at a 4.5% rate. By historic norms this is easily doable, but in today’s world it is unlikely.

Within the data real exports grew at a 14.1% annual rate, about the same as the 14.0% rate in the first quarter. But real imports surged at a 28.8% annual rate compared to a 11.2% rate in the first quarter.

Real final sales to domestic purchasers accelerated to a 4.1% annual rate compared to 1.3% in the first quarter. But because trade was a major negative, real final sales of domestic product only expanded at a 1.1% and 1.3% rate in the first and second quarter, respectively. Domestic stimulus is working, but because of the international leakages it is being dissipated abroad and the economy is not responding. This is the real structural problem the economy is facing and reflects the major hurdle that did not exist before the US started borrowing abroad to live beyond its means in the early 1980s.

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