The big news today is the advance estimate of second quarter GDP, available here. The top line number is that GDP growth was -1.0% at an annual rate in the second quarter, an improvement from the growth rate of -6.4% in the first quarter. I think it is too early to identify the end of the second quarter as a business cycle trough -- we need to see whether GDP growth turns positive in the third quarter and whether there was a pickup in the other recession indicators.
I wanted to take the occasion of this news release to dig a bit into the composition of GDP. The following table (click on the thumbnail for a larger image) shows some data from Tables 1.1.1 and 1.1.10 of the National Income and Product Accounts. The recession was precipitated by a fall in private investment, which includes equipment & software, inventories, and both residential and non-residential structures. The table begins in 2006-I, the quarter in which private investment peaked. The top panel shows the quarterly growth rates of each GDP component in the intervening period. What is most surprising about the table is how little growth there has been in expenditures by state and local governments since the recession began -- in fact, quarterly growth has been negative in half of the quarters of the recession.<!--break-->
The bottom two rows show the composition of GDP in the quarter prior to the peak in private investment and the latest quarter. Investment's share has fallen by 6.4 percentage points of GDP. How has that been reallocated? Consumption is higher by 0.8, imports are lower by 3.7, federal government expenditures are higher by 1.2, and state and local government expenditures are higher by 0.7 percentage points. My hope going into the recession was that government expenditures, preferably on capital projects, would have played more of a role, generating much larger numbers in the last two columns.