There were plenty of reasons to be optimistic about the U.S. economy at the tail end of last year. On balance, the year had been pretty miserable, growth-wise, up to that point: gross domestic product grew less than two percent. But the fourth quarter came in at double that, a surprising 4 percent. The stage was set for some real if not spectacular economic recovery in 2012.
The first quarter initially looked good, as we started to add 200,000-plus jobs. But when the GDP numbers started to roll in, we could see a repeat of an old pattern: the year begins with promise, only to hit headwinds by spring. In 2011, in was the Japanese earthquake and tsunami, a spike in oil costs, and the debt-ceiling battle and ensuing U.S. credit downgrade by S&P that smothered progress. This year, it's been ongoing troubles in Europe, plus a hot summer and drought that damaged agriculture, which had been one of the unsung stars of the recovery.
First quarter GDP growth was only 2 percent, according the Commerce Department — half of the preceding quarter. Second quarter GDP was just revised down to 1.3 percent to 1.7 percent. This isn't good. It's consistent with what I've called "stuckflation" — an economy that isn't growing by much and in which unemployment is high (it's been above 8 percent nationally for years now), but where inflation is low, due to a complete reluctance on the part of consumers to spend.
It's also consistent with the weak jobs numbers we've seen since the beginning of the year. GDP of barely more than 1 percent isn't going to add jobs at a very good clip. In fact, given the downward trend, we should start worrying about a recession on the horizon (that would be two consecutive quarters of negative GDP, or economic contraction).
In California, we've been adding jobs at a faster rate than the nation as a whole. But the state economy was hit harder than much of the rest of the country. So the slowdown in U.S. GDP just means it will take us that much longer to slog out of the Great Recession.