The economy: In need of more Band-Aids

"A poor second half could boost the odds of more stimulusTHE American economy entered the summer on a strong note as GDP grew by an annualised 3.3% in the second quarter. That figure, released last week, was much better than the first estimate of 1.9%, and mostly reflected a strong trade performance. Another important factor was that, despite rising unemployment, soaring fuel prices and constricting credit, consumer spending managed to grow at a 1.7% annual rate. For that, thank a fiscal stimulus package that included $110 billion in tax rebates, of which $92 billion had been disbursed by early July. Without those cheques, Macroeconomic Advisers, a forecasting firm, figures that consumer spending would not have grown at all. The second half is already looking weaker. Real consumer spending tumbled at a 0.4% monthly rate in July (see chart) as car sales plunged and high oil prices bit. The drop may also have reflected a reversal of the temporary boost from rebates delivered in previous months. Economists at Bank of America think consumer spending will decline in the current quarter, for the first time in 17 years. The fourth quarter could be worse. Unemployment is probably heading higher. Housing may be bottoming, as stocks of unsold homes drop and price declines slow, but the credit crunch shows no sign of easing. ..." (2008-9-4)

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