U.S. economy shrinks 1% in Q2

Marketplace Staff Aug 27, 2009
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U.S. economy shrinks 1% in Q2

Marketplace Staff Aug 27, 2009
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TEXT OF INTERVIEW

Bill Radke: The U.S. economy contracted last quarter for a record fourth straight time — the Gross Domestic Product shrank by 1 percent. That report from the government just a few minutes ago. It’s a revised figure, but it matches the government’s original estimate and that’s kind of good news because analysts were expecting the today’s GDP news to be a downward revision.

Also this morning, we also just learned first-time jobless claims fell a little bit last week. Let’s figure out how we should feel about all this. Joining us live is Greg McBride, senior financial analyst at Bankrate.com. Good morning Greg.

Greg McBride: Good morning Bill.

Radke: So the economy shrank by how we thought it would shrink. We hear so many numbers and revised numbers. I don’t know, how are you feeling about this GDP news?

McBride: I think this is a bit of good news, just in the sense that you mentioned. We were expecting this number — upon closer scrutiny — to be revised down lower from what was the initial estimate we got a month ago. The fact that it wasn’t is good news and I think bodes well for the third quarter.

Radke: When you look closer at the numbers, they break out what’s going on in the economy, what did you find interesting Greg?

McBride: The main takeaway here is that it’s government spending that’s been the key contributor, and that’s at the federal, state and local level. That everything else is still in retrenchment mode. It’s really the government spending that really prevented the downturn from being worse than it could have been in the second quarter.

Radke: Well that makes you wonder what happens when the government’s spending tapers off?

McBride: And that’s where the uncertainty lies. The question is: Is the consumer going to pick up the slack? And I think it’s going to be some period of time before we know that for sure. In the third quarter, we’re seeing an uptick in home sales because of the first-time home buyer tax credit, that’ll help. But beyond that I think there’s going to be a lot of uncertainty about just when the consumer is going to pick up the ball and run with it.

Radke: Yeah, people wonder when temporary stuff like Cash for Clunkers and home sale credits go away. I want to ask you about first-time jobless claims falling a little bit last week. Big deal or not?

McBride: Nah, not much better, not much worse. But that’s progress in and of itself considering that just a few months ago we were seeing accelerating job losses, and we’re not seeing that anymore.

Radke: Greg McBride’s a senior financial analyst at Bankrate.com. We appreciate it.

McBride: Thanks so much Bill.

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