Friday, July 31, 2009

U.S. Economy Contracted at 1% Annual Rate in Second Quarter

And we probably would have had a modestly positive quarter were it not for the Administration's paring back of spending in June. Take a look at cumulative net spending in the chart below:

Total receipts in June surpassed total outlays and that sucked demand out of the economy. That's what hurt the stock market in June and that's why we had a negative quarter.

However, look at what is happening in July...strongly positive in net spending. That's why stocks are up and that's why the data is improving. Forget second quarter, stocks will be focusing on the second half and if spending stays elevated, expect the economy to post some positive numbers for the remainder of 2009.

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