Economic Reverberations

The lead article in today’s New York Times, “New Data Shows Sharp Slowdown in Growth Rate,” provides an extra dollop of bad news about the economy. The most widely accepted measurement of the economy’s growth, gross domestic product (GDP), increased less than one percent for the first half of 2011 according to the Commerce Department. This was a much weaker statistic than most economists expected, and it also came with revisions extending all the way back to 2003, showing that the recession was deeper than realized and the recovery weaker.

According to the article, a sharp economic downturn is often followed by a sharp recovery, but in the present case, this did not hold true. In addition, all the turmoil over the debt ceiling is just making matters worse. If the U.S. should default on its debt, especially in light of these new statistics, a new recession may be inevitable.

Thanks to the uncertainty, frankly caused by intransigeance among Tea Party members in the House, businesses are sitting on their profits instead of hiring new workers. And this, in turn, results in the stubborn unemployment rate and a reduction in overall consumer spending. And consumer spending is the engine that drives the economy.

One hopes these new statistics will make Washington come to its senses.