The U.S. economy grew from April through June at an annual rate of 1.7 percent – a sluggish pace but stronger than in the previous quarter. Businesses spent more, and the federal government cut less, offsetting weaker spending by consumers.
The government on Wednesday sharply revised down its estimate of growth in the January-March quarter to a 1.1 percent annual rate from a previously estimated 1.8 percent rate.
NPR’s Yuki Noguchi looks at how a low growth rate affects the entire economy, from the job market to home buying.
The Associated Press contributed reporting to this article.
- Yuki Noguchi, business correspondent for NPR.
JEREMY HOBSON, HOST:
From NPR and WBUR Boston, I'm Jeremy Hobson. It's HERE AND NOW.
And the good news is the economy is still growing. The bad news is it only grew at a rate of 1.7 percent in the second quarter of this year. That number could give us a heads up to Friday's monthly jobs report from the Labor Department, which is widely considered to be the most important economic indicator of the month. NPR's Yuki Noguchi joins us with more on all this. And, Yuki, that GDP number is just one piece of data. It's not the only one. What does all of this data tell us about where we are in the economy right now?
YUKI NOGUCHI, BYLINE: Well, let's start with the GDP number first. I mean, basically, the economy is doing a little bit better than people thought. The federal spending clampdown is not exactly taking a huge bite of the economy, as was expected. And, you know, of course, public sector spending was down, but it's down less than the first part of the year, and consumers and businesses are spending more, which offset the decrease in spending. But, of course, as you mentioned, that's a pretty low bar to beat. I mean, we beat low expectations. 1.7 percent is still historically weak, and most economists say we need something more like 3 percent.
HOBSON: And there was a little technicality here, Yuki. And I want to ask you about that. I know that the government made some changes this month in the way that the GDP is calculated. Tell us about that.
NOGUCHI: Yeah, GDP tries to capture everything that we produce and sell in the U.S. So it includes things like exports of cars, you know, inventories that stores keep in stock, government purchases of computers, you know, what have you. But of course, the economy changes and technologies change, and we're moving, you know, less from an industrial economy to one that relies more on intangible things, things like intellectual property and digital content.
And so the government is basically, in making this move, trying to count more of those things, like what drug companies spend on research and development, for example, or even investments to develop TV shows and movies. And in the aggregate, these things generate hundreds of billions of dollars to the economy. And the fact that we're counting them now doesn't affect the rate of growth, which is the important number. It just sort of alters the estimated size of the overall economy.
HOBSON: Hmm. So what is all this going to mean for hiring? We're going to get, as I said, the July jobs report on Friday and find out what the new unemployment rate is.
NOGUCHI: Yeah, so, you know, I mean, GDP growth does drive hiring. Obviously you need the economy to grow in order for businesses to want to hire. You know, it is - GDP growth is expected to improve in the second half of the year to something north of 2 percent. So, you know, hiring - what's interesting about this actually is that hiring is actually exceeding the levels that you might expect given the amount of growth that we're seeing. I mean, it's pretty decent hiring.
And just this morning, for example, Moody's ADP payroll survey was out and it showed 200,000 private sector jobs were added last month, which was more than expected. The bad news part of that is that it seems that a lot of those jobs that are being added are low-wage jobs and a fair number of them are part time as well. So it's not quite the stable good job growth that you'd expect to see if the economy were expanding faster.
HOBSON: And often, that ADP report is not a good predictor of what comes from the Labor Department, but I guess we'll find out in a couple of days. One...
NOGUCHI: Yeah, it has been a pretty good predictor in the last few months.
HOBSON: Well, Yuki, let me ask you about one part of the economy that everyone is seeing doing much better and that is housing. In some places, you could say it's on fire.
NOGUCHI: Yeah, I mean, housing has been doing well or at least much better than it had been doing. Earlier this week, you saw, you know, you've seen a number of reports about home prices, and they've all been pretty consistent. You saw another one this week that showed more improvement and that, in fact, prices in Denver and Dallas are actually now exceeding their pre-recession levels. And, you know, rising home prices, obviously, has a big effect on people's sense of economic wellbeing. It's tempting to say things are great, but they're just now getting close to normal.
HOBSON: NPR's Yuki Noguchi, business correspondent. Thanks so much.
NOGUCHI: All right. Thanks so much.
HOBSON: And coming up, we'll hear from a congressman who is leading the charge to limit the NSA's surveillance programming. That's next. HERE AND NOW. Transcript provided by NPR, Copyright NPR.