MADELEINE BRAND, host:
The US economy shrank again during the second quarter of this year, but the drop was the smallest decline in a long time. And that's leading some to say that the recession is nearing an end. President Obama credited the stimulus package for this better-than-expected news. NPR's Jim Zarroli has our story.
JIM ZARROLI: In recent months, there's been a growing pile of data suggesting that the recession is nearing an end and that, while the economy isn't growing yet, it's no longer shrinking the way it was. This morning's report confirms that. The Commerce Department said the economy shrank at an annual rate of 6.5 percent during the first three months of this year. But by the second quarter, the decline was much smaller. President Obama spoke about the report this afternoon.
President BARACK OBAMA: It told how close we were to the edge. But the GDP also revealed that in the last few months, the economy has done measurably better than we had thought - better than expected.
ZARROLI: The president said the economy still has a long way to go and unemployment is still a big problem. But the economy has improved, and he said that's due in no small part to the nearly $800 billion stimulus package he pushed through Congress. Economist Josh Bivens, of the Economic Policy Institute, agrees. He notes that federal spending rose nearly 11 percent during the second quarter, and state and local government spending went up, too. In fact, government spending was, by far, the strongest part of the report.
Mr. JOSH BIVENS (Economist, Economic Policy Institute): Absent the Recovery Act, the stimulus package - we probably would've been looking at something like a minus four percent, which is in line with the three really bad quarters that preceded it. So, I think that was the difference between this being merely bad, instead of another disastrous quarter.
ZARROLI: Bivens says the economy is by no means out of the woods. He says it's not really clear whether this is a temporary rebound. One problem on the horizon is consumer spending, which accounts for two thirds of economic activity. It fell by 1.2 percent during the second quarter, after rising the quarter before. Bivens says unemployment is high, so people are buying less and saving more.
Mr. BIVENS: So to me, the prudent thing to do - the insurance against a really bad next two to three years - would be even more stimulus.
ZARROLI: But Alan Meltzer, professor of political economy at Carnegie Mellon, doesn't think that would be such a good idea. Meltzer says the stimulus package did boost the economy, but not as much as it should have, because Congress spent the money unwisely. Meltzer has a different view of what happened to growth last quarter. He says the economy is simply finding its footing again, after the government's disastrous decision to let Lehman Brothers fail last September.
Professor ALAN MELTZER (Professor of Political Economy, Carnegie Mellon): There was a panic in the markets end of last year. The first quarter reflected that. We're now back to where we're picking up from where we might've been if they hadn't done such a terrible thing.
ZARROLI: But he is doubtful the economy will keep improving, given all the increased spending and the talk about higher taxes coming out of Washington right now. On Wall Street, the view is more optimistic. Stock prices finished the day higher, and they ended the month up again. Whatever the reason, many investors are convinced that the long, stubborn recession, that got underway more than a year and a half ago, is almost over. And this morning's reports seem to support that conclusion.
Jim Zarroli, NPR News, New York.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.