The argument over whether the struggling U.S. economy is in a recession got more ammunition for both sides Thursday in the form of the government's report on the gross domestic product.
The GDP report measures the total output of goods and services in the economy. It's the broadest measure of the health of the U.S. economy, but it doesn't always tell the whole story.
The government says that in the second quarter of this year, the economy expanded at just under a 2 percent annual growth rate. Not bad for an economy some say could be in recession. The report also contained some revisions, however. Among them was a determination that in the last quarter of last year, the U.S. economy actually contracted — just slightly, by two-tenths of a percent. That led several prominent economists to suggest it was proof positive the U.S. is in a recession.
Not so, says Bill Cheney, chief economist for John Hancock Financial in Boston.
"The fact that we've had growth of about 1 and 2 percent in the first couple of quarters of this year suggests to me that we're definitely not in a recession. And there are aspects of this report which suggest that we're probably not going to be," he says.
U.S. exports have been fueling economic growth. Overseas buyers find them especially attractive because the weak dollar makes U.S. goods cheaper.
The government stimulus checks have also boosted growth, Cheney says. Consumers have spent about 20 percent of what they got so far, so Cheney thinks the economy could still get a little pop from stimulus spending this summer, making a recession doubtful.
But there are some economic events not directly reflected in the GDP numbers that affect people's economic well-being.
On a street in the Brambleton neighborhood of Ashburn, Va., real estate agent Joe Doman stands in front of a townhouse that's about to be auctioned.
"There are signs all over the house indicating that there's definitely going to be an auction — and anyone's invited," Doman says.
Doman says that just over a year ago, some of the people going into foreclosure now were buying homes in this neighborhood for between $600,000 and $625,000.
"They're selling now for about $440(000)," he says.
That nearly 30 percent drop in the value of this home is not reflected in the GDP numbers, though it represents a big financial setback for the former owner, and probably for the bank that held the mortgage. Home price declines from 10 percent to 30 percent have been felt in many areas of the U.S.
"There's no question, the American people are hurting a lot," says Lyle Gramley, former Federal Reserve governor and now senior economic adviser for the Stanford Group. "We know, of course, that GDP is a number that doesn't include the decline in home prices. It doesn't include the decline in your stock portfolio. It doesn't record the effect on your psyche when you see foreclosure signs going up in your neighborhood."
While these factors aren't directly represented in the top-line GDP number, says Gramley, they do translate into the sense of wealth and well-being that Americans feel. That means they could ultimately translate into lower consumer spending, which does directly affect GDP growth.
Cheney says the low level of consumer spending in the past year is evidence that's already happening. In any case, he argues, the GDP is the most comprehensive measure of what the total economy is doing, and right now it's growing.
"We're not looking at the kind of shrinking in the overall economy," he says. "This has accompanied essentially every recession we've ever had."
"But having said that, the fact remains that for six consecutive months this year — and we may find it seven tomorrow — we've been losing jobs," he says. "And jobs, in a fundamental sense, are the basic measure of how well the economy is serving people."
The August employment report will be released by the government Friday. Cheney says while job losses have been smaller than in previous downturns, if the economy isn't creating jobs, there's something wrong.