IMF Revises U.S. Growth Down, Jobs Picture Bleak

From Reuters.com:

U.S. economic growth will be much weaker this year and in 2011 than previously thought and that dims hopes for bringing down a very high unemployment rate anytime soon, the International Monetary Fund said on Wednesday.

In a sober assessment of the U.S. outlook, the IMF pulled down its estimate for 2010 growth to 2.6 percent from the 3.3 percent it published in July and said gross domestic product or GDP will expand 2.3 percent in 2011 instead of 2.9 percent.

"The most likely prospect for the U.S. economy is for a continued but slow recovery, with growth far weaker than in previous recoveries, considering the depth of the recession," the IMF said in its World Economic Outlook published ahead of weekend semi-annual meetings of it and the World Bank.

The IMF said the main reason the U.S. recovery is so weak is that consumer spending is sluggish and suggests it is little wonder that is the case. Falling home prices have reduced household wealth, 9.6 percent of the workforce is unemployed, banks won't lend and people are scared into saving.

It says the gap between actual and potential economic output will be a lingering drag on the pace of recovery.

Government Revises GDP Estimate Down to 2.7% For 1Q

The Government lowered their original first quarter estimates regarding the Gross Domestic Product, due to a an underestimate of consumer spending. Even though the estimate is lower, it does mark the third consecutive quarter of growth. Check out the following story about the adjustment courtesy of USA Today:

Gross domestic product rose at a 2.7% annual rate in the January-to-March period, the Commerce Department said Friday. That was less than the 3% estimate for the quarter that the government released last month. It was also much slower than the 5.6% pace in the previous quarter.

GDP measures the value of all goods and services produced in the United States and is considered the best measure of the country's economic health.

The economy has now grown for three consecutive quarters after shrinking for four straight during the recession — the longest contraction since World War II.

In normal times, 2.7% growth would be considered healthy. But it's relatively weak for a recovery after a steep recession. After the last sharp downturn in the early 1980s, GDP grew at annual rates of 7% to 9% for five straight quarters.

Continue reading at USA Today.com…

Why a High Tax-To-GDP Rate Won't Spur Growth

From The CSMonitor.com:

Responding to a question at the Brookings Institute, US Secretary of State Hillary Clinton remarked:

Brazil has the highest tax-to-GDP rate in the Western Hemisphere and guess what — it's growing like crazy. And the rich are getting richer, but they're pulling people out of poverty. There is a certain formula there that used to work for us until we abandoned it, to our regret in my opinion.

Socialists are always telling us such things. At some place, at some time, water is observed flowing upstream, at least it seems that way, and — voilà! — the laws of economics are all thrown out the window.

First of all, one observation does not prove anything. Economics isn't that way. Mrs. Clinton is just revealing how ignorant she is of economic science. What is your theory, Madam Secretary, of the relationship between tax policy and economic growth, and what do all the data say? Economics isn't climatology. We don't get to hide the inconvenient data.

Second, economic theory doesn't say much about the ratio of "tax revenue" to GDP and economic growth. There are several reasons for this. I'll briefly list four reasons and then spend some time on a fifth.

Double dip recession: What are the odds?

Have you been hearing the term “double dip recession” lately? Do you know what it means? It refers to a recession followed by a short-lived recovery that then slides back into a second recession. That said, do you think we are in for one? With a plunging stock market as I write this due to the Gulf oil spill and unemployment at an all time high, it’s not difficult to imagine. In an article on CNN.com, it is explained that a chance for a double dip can be measured by fluctuations in gross domestic product, or GDP, one of the broadest measures of economic activity. They explain that GDP would have to go into negative numbers again for us to fall into a double dip recession. Although growth might not be as high as the GDP growth in 2009, it’s not likely it will turn negative again. David Wyss, chief economist with Standard & Poor’s said the odds have shrunk to a 20% chance. I’ll bet on those odds.

Read the full article here.