Press Releases

Statement for the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association

(Archived Content)

John Bellows
Acting Assistant Secretary for Economic Policy

Economic growth moderated in the first half of 2011.  The advance estimate by the Bureau of Economic Analysis (BEA) is that real GDP rose by 1.3 percent at an annual rate in the second quarter of 2011, following a 0.4 percent increase in the first quarter.  This is slower than growth in the second half of 2010, when the economy expanded by 2.4 percent at an annual rate. 

The recent deceleration is partly due to transitory factors, including poor weather early in the year, an unusually sharp drop in federal defense spending, a spike in energy prices, and automotive supply-chain disruptions stemming from the natural disaster in Japan.  These transitory factors have either reversed or are receding, and their absence is expected to provide a boost to growth in the coming months.  

In addition to transitory factors, a more general slowing in underlying demand also appears to have contributed to the weaker-than-expected performance of the economy.  Consumption growth has been held down by slow income growth, which in part reflects a recent soft patch in the labor market recovery, and by ongoing household balance sheet restructuring.  The consequent low demand for credit, combined with tight lending conditions, has resulted in anemic credit creation.  The underlying weakness in demand poses a downside risk to the economy going forward. 

Private forecasters currently anticipate that the economy will grow by more than 3 percent at an annual rate in the second half of 2011.  This reflects the easing of the transitory factors that held down growth in the first half of the year.  However, it also reflects a series of downward revisions to forecasts as incoming data suggest that the recovery has less momentum than previously thought. 

New data released last week by the BEA show that the recent recession was even more severe than previously estimated.  From late 2007 through mid 2009, real GDP fell by a cumulative 5.1 percent (revised from 4.1 percent) – the deepest recession in postwar U.S. history.  The decline in real GDP growth in the fourth quarter of 2008 was revised sharply lower to an annual rate of -8.9 percent from -6.9 percent, making it the largest one-quarter decrease since early 1958.  The revised data show that since the economy began to recover in mid 2009, real GDP has risen by 5.0 percent, recouping nearly all of the output lost during the recession.

The economy has made significant progress since the recovery began, especially given the historic proportions of the financial crisis and recession.  The unemployment rate, which is currently at 9.2 percent, has fallen about one percentage point since its peak in the fall of 2009.  While this progress is encouraging, there are still far too many Americans looking for work.  Moreover, unless more is done to generate jobs, the high level of unemployment will continue to weigh on the recovery.  That is why the Administration has called on Congress to enact measures – including extending the payroll tax cut, passing the pending free trade agreements and creating an infrastructure bank – that will help put Americans back to work.