This is an interesting day in the life of an economist. It was almost exactly a year ago that North American stock markets plunged in depression-like fashion. Today is also when the Bureau of Economic Analysis released its revised estimate of second-quarter U.S. GDP growth, or more accurately, change. Q2 has been revised from -1.0% to -0.7% (quarter to quarter annualized).

As the charts below indicate, the stock markets have actually bounced back nicely. The NASDAQ (+1.4%) index is even a little higher now than on Sept. 30, 2008. The TSE (-3.0%) is down only a little and the Dow Jones industrials (-11.9%) and the S & P 500 (-9.4%) are lower by about one-tenth. While there was a dramatic drop in stock prices after the failure of the first financial bailout package in Congress a year ago, the more significant decline has extended over a longer time frame. It began after share prices hit their cyclical highs in October 2007. The three U.S. indices have a ways to go to get back to their levels of two years ago. The Canadian bellwether index, the TSE, maxed out relatively recently, in May 2008, because commodity prices stayed strong through the first half of last year. The TSE is heavily weighted in raw materials firms.

NASDAQ, high-tech and productivity

NASDAQ’s ok performance is synonymous with a sector that has sailed through the recession not too badly. Employment cuts have been much more severe in other areas of the economy. In fact, job cuts elsewhere is one reason high-tech has been kept relatively busy – the need for companies to improve productivity and continue to perform with fewer workers. The TSE has been the beneficiary of first-stirrings in world commodity prices as some of the BRIC nations have been able to shock their economies back to life.

The markets are anticipating better GDP reports in the quarters ahead. The trend of U.S. GDP change has certainly improved, from -5.4% in Q4 08 and -6.4% in Q1 09 to -0.7% in Q2 09. Canada’s Q2 09 GDP change (-3.4%) was also an improvement versus Q1 (-6.1%), but not to the same degree. Canada did have an advantage over the U.S. in the area of consumer spending (+1.8% quarter to quarter annualized in Canada versus -0.9% in the U.S.). The U.S. consumer is still in shell shock from financing worries and home price declines. The “cash for clunkers” program will help the third quarter GDP numbers.

Investment and foreign trade

In all three main areas of fixed investment – residential, non-residential structures and equipment and software – U.S. Q2 spending was in decline, but to nothing like the same extent as in the first quarter of this year. Foreign trade also helped out the U.S. economy. Both exports and imports of goods were lower in Q2 than in Q1, but much less so than in Q1 09 versus Q4 08. Furthermore, the decline in goods exports (-6.3%) was good news relative to the decline in goods imports (-16.5%). Imports are a debit item in the GDP accounts. A pick-up in U.S. government spending (+6.7%) also helped to move the U.S. economy along in the latest quarter. In Canada, it was a sharper drop in goods exports (-22.3%) than in goods imports (-9.8%) that particularly held back second-quarter GDP.

Looking forward, the stock markets have probably got it right. Government stimulus money, record low interest rates, some improvement in auto sales, an end to the U.S. homebuilding decline and a pickup in growth in other countries will help to stabilize GDP and provide a firmer base from which to expand from this point going forward.