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Thursday, August 27, 2009

GDP Numbers Updated

The U.S. Bureau of Economic Analysis came out with its second estimate of second quarter GDP today.

The top line number was unchanged, with real GDP growth in the second quarter registering -1.0%.

However, it needs to be recognized that government investment and consumption played a big part in making the GDP number look better than it otherwise was. Federal government spending was up 11%, and state and local government by 3.6%.

So, real private sector GDP growth – that is, quality GDP growth – actually came in at a grim -2.27%.

The theory on more government spending in recession is that it will somehow spark the private sector. The reality? Government merely crowds out the private sector.

Raymond J. Keating
Chief Economist
Small Business & Entrepreneurship Council

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