The Bureau of Economic Analysis put out its first estimate on GDP for the second quarter of 2012, finding that it increased at an annualized rate of 1.5%, down from a revised 2.0% in the first quarter. This is below trend, though in line with expectations, and it suggests that the economy is stuck in neutral for the time being.

A decent first-time unemploymnent report this week could mean that things are steadily improving in the third quarter, but that measure has been pretty volatile all month. And on the other side, pending home sales contracts for July and August are down, meaning that growth may slow in that big consumer expenditure.

The slowdown in growth correlates with a slowdown in real personal consumption expenditures, which stands to reason, as consumer spending makes up close to 70% of the economy. Real PCEs went up 1.5% in the second quarter, compared to 2.4% in the first quarter. Exports actually went up in the second quarter, but so did imports, meaning the balance of trade flatlined or grew a bit worse. Residential and non-residential fixed investment also decelerated in Q2.

Government expenditures remain a drag on the economy, though less so in the second quarter. From the report:

Real federal government consumption expenditures and gross investment decreased 0.4 percent in the second quarter, compared with a decrease of 4.2 percent in the first. National defense decreased 0.4 percent, compared with a decrease of 7.1 percent. Nondefense decreased 0.3 percent, in contrast to an increase of 1.8 percent. Real state and local government consumption expenditures and gross investment decreased 2.1 percent, compared with a decrease of 2.2.

This number will probably get worse as we go along, especially if the sequester goes into effect after the end of the year. The economy will have to fight the government’s fiscal policy, rather than being carried along by it.

As per usual, more from Calculated Risk. We still have the main problem that we’ve had since the Great Recession – a huge output gap that’s not being filled by any investment, public or private, to increase demand.