Support Marketplace

Hey! Big economic growth! ... Oh, wait.

Shoppers check the merchandise at an Ikea store in the Brooklyn borough of New York City.

TEXT OF STORY

KAI RYSSDAL: It's a stretch to call this economy above average. But if you go strictly by the numbers it is -- 3.3 percent growth for the second quarter beats the historical record by just a little bit. Before you get all excited, though, you should probably listen to Marketplace's John Dimsdale explain why the momentum might not last.


JOHN DIMSDALE: Despite high energy and food prices, a deep decline in housing and tight credit, the economy jumped ahead last spring. Mark Zandi at Economy.com attributes the growth to . . .

MARK ZANDI: Two things: One, the tax rebate checks. Consumers went out and spent them. And a very large, really record improvement in our trade balance driven by a surge in exports and very weak import growth.

Many economists doubt these trends will last. For one thing, the tax rebate checks have all been spent. Also, economic growth overseas is slowing, reducing demand for U.S. exports. The chief economist for the Manufacturers' Alliance, Dan Meckstroth, says housing related industries like construction materials and appliances are already weak. And he's gloomy about the prospects.

DAN MECKSTROTH: We think the economy measured through GDP is going to experience a recession at the end this year and the first quarter of next year. The rebate checks were able to allow consumers to pay off debt and increase purchases somewhat, but it's a very weak consumption response.

Another bad indicator: profits were weak in the 2nd quarter. Mark Zandi says businesses are getting squeezed between higher prices for raw materials and reluctant consumers.

ZANDI: The sales environment is so tough that they're having to eat some of these higher costs for oil, energy, commodities, and aren't able to pass it through and it's cutting into their profitabilities.

Zandi says whether the economy is headed for a recession is a close call. But lower oil prices would help avoid one.

In Washington I'm John Dimsdale for Marketplace.

About the author

As head of Marketplace’s Washington, D.C. bureau, John Dimsdale provides insightful commentary on the intersection of government and money for the entire Marketplace portfolio.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...