Some quick comments on the GDP report

The BEA reports that second quarter GDP growth was 2.4 percent, about what people were expecting but disappointing. At the same time, the BEA adjusted its estimate of first quarter growth way up to 3.7% (while adjusting downward its estimates of growth in 2009Q3 and 2009Q4).

There's lots of commentary out there on the report (here, here, here for starters), most of it highlighting the negative. Most negative is consumer spending, which crept up at an annual rate of 1.6 percent. That bad boy has to get into the 3 percent range for us to have a strong recovery, but it's unlikely to do so while employment growth is slow, consumers are heavily indebted, and the housing market is dead in the water.

But let's look at the good in the report. Business investment was very strong: non-residential fixed investment rose at a 17 percent annual rate, mostly due to investment in equipment and software. As has been widely reported, businesses are flush with cash, profits are high, and this month there has been a flood of new bond issuance. All of these things suggest continued strength in business investment in coming quarters.

Another thing that is good in this report is that the only major component that did not contribute to growth was imports. Imports rose by an astonishing 29 percent (annual rate), reducing GDP growth by four percentage points. That rate of increase is not sustainable. As imports return to their historic norm they will do less to dampen growth.

Finally, if we look at the last three quarters in its entirety, we see growth averaging 3.7 percent. That's not great, but it's not awful either. It would be great if we could have a couple of years of 5, 6, 7 percent growth like we did in the 1980s, but the economy isn't structured like that anymore and this is a different kind of recession. I'm guessing that 4-5 percent growth is about as good as we can realistically expect, and we're not that far off.

But back to the negative: the trend is down, and that's trouble. Even if business investment stays strong and imports stabilize, the fading effects of the fiscal stimulus will bring growth down in the second half of the year. There's no sign that consumers are going to go on a tear or the housing market is going to improve. So it's possible we could have 2 percent or lower growth in the next two quarters, as a lot of analysts are predicting. I'm more comfortable with the Fed's forecast of 3%+ growth however. Either way, the economy could use another dose of monetary and fiscal stimulus.