Not So Much Shrinkage

The good news, the GDP numbers for second quarter only showed a 1% contraction, better than expected. The bad news is that consumer spending was way, way down in April through June.

Gross domestic product, which measures total goods and services output within U.S. borders, fell at a 1.0 percent annual rate, the Commerce Department said, after tumbling 6.4 percent in the January-March quarter, the biggest decline since a matching fall in the first quarter of 1982.

It was previously reported as a 5.5 percent drop.

With the contraction in the second quarter, U.S. GDP has fallen for four straight quarters for the first time since government records started in 1947.

"It's still a shaky outlook for the economy, but no shakier than before. No one's world view will shift. Consumer spending is very shaky now. That's the major risk in the economy," said Pierre Ellis, senior economist at Decision Economics in New York.

Consumer spending, which accounts for over over two-thirds of U.S. economic activity, fell at a 1.2 percent rate in the second quarter after rising 0.6 percent in the previous quarter.

That sliced 0.88 percentage points from second quarter GDP, the department said.

U.S. stock index futures fell on the report, with investors taking a dim view of the drop in consumer spending, while Treasury debt prices rose. Analysts polled by Reuters had forecast GDP falling at a 1.5 percent rate in the second quarter.

Bad, bad news for a consumer-driven economy. While the official recession may be over soon, the functional recession is going to most likely continue on for several quarters more as what little growth there is ends up being anemic. The high unemployment rate and still weak housing market (and collapsing commercial real estate market) will offset most if not all the growth in the economy for the next year or more.

Going to be a long trek out of this hole, gang.