GDP Report A Cause For Faint Hope

The government's gross domestic product report shows that the economy shrank at a 1 percent annual rate in April, May and June. It doesn't sound like terribly good news, but economists say the numbers are an improvement compared to the numbers at the beginning of the year. They say it means that things are looking up for the economy, and that the recession may be ending. NPR's John Ydstie reports.

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Some confirmation this week that the U.S. economy might be improving, and that the deepest recession since the Great Depression may be ending. The government's most comprehensive report on economic activity - the gross domestic product, or GDP report - showed the economy shrinking at just a 1 percent annual rate during April, May and June.

NPR's John Ydstie has the details.

JOHN YDSTIE: The good news on the economy was actually embedded in what would normally be considered bad news. The economy was still shrinking in the second quarter, and it was the fourth consecutive quarter of economic decline. That makes this the longest and deepest recession since at least 1947, when the government started keeping GDP records.

President Obama described it this way in a statement delivered at the White House…

President BARACK OBAMA: This morning, the GDP revealed that the recession we faced when I took office was even deeper than anyone thought at the time. It told us how close we were to the edge.

YDSTIE: In fact, the report show the economy tumbling downward at an alarming 6.4 percent annual pace in the first three months of the year -worst than previously thought. That makes the 1percent rate of decline in April, May and June look almost healthy, says Lakshman Achuthan of the Economic Cycle Research Institute.

Mr. LAKSHMAN ACHUTHAN (Economic Cycle Research Institute): The very fact that we are so much less bad in the second quarter - we're still contracting; it's still a recession. However, compared to where we were at the start of the year, it's a massive improvement and it confirms that we have turned the corner.

YDSTIE: Achuthan says we'll probably look back and conclude that the U.S. exited this deep recession this summer. But he says most people won't feel it immediately.

Mr. ACHUTHAN: It is completely normal for no one to believe that there is a recovery occurring. It would be weird if people believed it. Every single time that a recovery is beginning, people doubt it.

YDSTIE: So what makes Achuthan so confident? Well, it's a group of leading indicators that he follows closely, including things like profit growth, housing activity, credit availability and stock market performance. He says none can reliably predict a recovery alone.

Mr. ACHUTHAN: But collectively, when they begin moving in unison, when they begin singing the same tune, that chorus among the indicators is the key signal that the business cycle has turned and is heading in a new direction.

(Soundbite of song, "Hallelujah")

CHORUS: (Singing) Hallelujah, hallelujah…

YDSTIE: Well, let's not get carried away. Most analysts think the economy is healing, though Achuthan is among the most positive. However, the view on the factory floor is still grim, says Ron Overton.

Mr. RON OVERTON (Overton Industries): We've flattened out. It doesn't seem to be getting any worse, but at the same time we don't see any real signs of improvement.

YDSTIE: Overton Industries employs about 80 people in Morrisville, Indiana. It makes tools that are used to manufacture parts in the automotive and defense industries. Overton laid off about 10 percent of his workforce during the downturn.

Mr. OVERTON: As far as looking forward and having enough confidence that we're seeing an uptick in where we'd be looking at calling people back, we don't see that right now.

YDSTIE: That's in line with the thinking of most economists, who believe unemployment will remain high and probably even rise in the months to come.

John Ydstie, NPR News, Washington.

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