US growth slows in second quarter

From the Financial Times (my emphasis):

US growth slowed to an annualised rate of 2.4 per cent in the second quarter but robust business demand suggested that the economy would avoid a feared “double dip” that could drag the world back into recession.

Friday’s preliminary gross domestic product estimate from the Bureau of Economic Analysis [PDF] showed growth below market expectations of 2.6 per cent and down from an upwardly revised rate of 3.7 per cent in the first quarter.

Consumption growth fell to 1.6 per cent from 1.9 per cent, which reflected the lack of new jobs, and implied that the recovery still cannot sustain itself.

The weakness of growth is disappointing for this stage in a recovery. If data in the coming weeks do not show job creation fast enough to cut a 9.5 per cent unemployment rate, then the Federal Reserve will feel pressure to ease monetary policy.

It's good to get the data, but I'm not sure I buy the spin. We talked about that "robust business demand" here and here. About monetary easing, Robert McTeer at Forbes tells us what that means (again my emphasis):

[I]t boils down to ... Fed purchases of securities to expand bank lending and investing and get the money supply growing faster.

Well we know that banks aren't lending, they're hoarding. And Paul Krugman tells us that increasing the money supply did nothing to help Japan. Here's Japanese money supply from 1995 to 2005:

All that money sitting there — and deflation continued apace. I remember Taka Ito telling me that the only consumer durable selling well was … safes. When you’re in a liquidity trap, the size of the base doesn’t matter.

Thank you, professor.

GP