Q2 (Advance) Research Notes

by Jim Baird on July 30, 2010

The rate of economic growth slowed in the second quarter, due in part to an increasing trade deficit coupled with lackluster consumer spending.

Increases in exports were more than offset by a sizeable pickup in imports during the second quarter, especially automobiles and consumer goods.

The good news in this report is reaffirmation that the economy grew for the fourth consecutive quarter.  The bad news is that, as expected, the report illustrates clearly that the economy continues to slow down.

Consumer sentiment slipped considerably in the latter half of the quarter, and that can be seen in the softer personal consumption expenditures.  Against the backdrop of a weak labor market and ongoing focus on consumer debt reduction, lackluster spending is to be expected; clearly, that expectation is being realized.

One bright spot for the quarter was the tremendous pickup in residential real estate, as homebuyers were spurred by the federal tax credit and low interest rates to move forward with new home purchases.  With the expiration of that credit, however, we anticipate a meaningful reversal in the third quarter.

As we look toward the latter half of 2010, we see very little on the horizon at present that suggests a meaningful pickup in the pace of growth.  We remain convinced that the headwinds to growth outweigh any tailwinds that may exist and expect growth to be restrained through the duration of the year.

Previous post:

Next post: