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NewsFlash: July 31, 2008

GDP growth too slow

By EPI economist Josh Bivens

While GDP growth remained positive in the second quarter, at 1.9% it is far too slow to keep the living standards of most working families from deteriorating. Given underlying growth in the working-age population and productivity, economic growth of less than 2.5% is a recipe for job loss, rising unemployment, and falling wages. The 0.9% growth rate of the first quarter of this year was accompanied by the loss of 247,000 jobs, and, the second quarter’s 1.9% growth was accompanied by a loss of another 191,000.

This labor market slack is showing up as falling (inflation-adjusted) wages for most American workers; wage growth for non-supervisory workers (80% of the private sector workforce) have lagged inflation in 5 of the first 6 months of 2008.

In short, quarterly GDP growth of greater than zero does not mean that the U.S. economy is performing well, or, even that we will not look back and declare the U.S. economy in recession.

Further, even the insufficient growth during the second quarter was helped along by the one-time boost to spending given by the rebate checks that were passed as part of the economic stimulus package earlier this year. Unless Congress steps up with another, and more effective, stimulus package (which it absolutely should), future GDP reports will be even worse.

SEE the full analysis in today’s GDP PICTURE later this morning.

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