WASHINGTON -- The good news last week came from the economy growing at a robust 3.4 percent annual rate in the second quarter -- disproving the gloom-and-doomers who predicted that the United States was heading into a recession. But bad news came from House Democratic leaders who were trying to raise corporate taxes on a lot of businesses that have contributed to that strong growth rate. It was a stark reminder that their addiction to taxes would sandbag the economy if they won back the White House in 2008.
The faster growth rate in the last three months, beating the consensus forecasts on Wall Street, proved that neither the decline in the housing market nor the rise in oil prices seem to have spilled over into the larger economy. Thus far, it seems that banks and other lenders -- who were making money hand over fist when the housing market was hot -- have been able to absorb the rising mortgage foreclosures. We still have not seen how much further the housing crunch has to go, but the evidence suggests that housing sales should begin turning around sometime in the last half of the year. So where was all this growth coming from?
No one encapsulated its component parts better than Edward Lazear, chairman of the Council of Economic Advisers: "I would say it can be summarized as follows," he said at a White House press briefing last week. "We got one point for consumption, we got one point from nonresidential construction and equipment and software, we got a point from exports, a point from government spending, and we lost half a point on housing. So a very balanced picture this time."
A closer look at the respective parts of the second quarter growth rate shows an economy -- despite its temporary housing illness -- running along at a healthy clip. Consumer spending grew at 1.3 percent. Exports grew by 6.4 percent. Nonresidential structure investment grew at 22.1 percent, federal spending was up by 6.7 percent and state and local government spending was up by 2.9 percent.
The numbers overall paint a brighter picture of the American economy than the negative picture we get on the nightly news shows. Yes, residential housing is in a slump, but nonresidential building is cruising right along at a hefty pace as businesses, plants, office buildings and the like continue their expansion. One of the most welcome economic forces spurring growth is the rise in U.S. exports and the narrowing trade deficit. The U.S. economy is being propelled in large part by a stronger global economy and, thanks to a number of free-trade agreements, we're making more and selling more in markets around the world. You don't hear very much about that on the nightly news, either.