Second Quarter GDP

The BEA gives us our "advance" estimates of second quarter GDP growth. Real GDP grew at a 2.5 percent annual rate. Over the last four quarters, the real GDP growth rate has averaged 3.5 percent, which is at or a bit above what I think most economists would consider its potential growth rate.

Revisions to prior years lowered GDP growth rates by 0.2-0.3 percentage points in each of 2003, 2004, and 2005. Overall, GDP growth over the 2002-2005 period averaged 2.8 percent according to the revised figures.

To me, the big news continues to be the negative personal saving rate. Quoting from the release:

Personal saving -- disposable personal income less personal outlays -- was a negative $141.0 billion in the second quarter, compared with a negative $97.0 billion in the first. The personal saving rate -- saving as a percentage of disposable personal income -- decreased from a negative 1.0 percent in the first quarter to a negative 1.5 percent in the second. Saving from current income may be near zero or negative when outlays are financed by borrowing (including borrowing financed through credit cards or home equity loans), by selling investments or other assets, or by using savings from previous periods.

In what is still the healthy part of the business cycle, I see no good reason why the personal sector should be running down its assets to support consumption.