The Bureau of Economic Analysis released their second estimate of United States 2010 second quarter Gross Domestic Product today. The revised estimate of 1.6 percent real GDP growth is much lower than the initial estimate of 2.4 percent, but some commentators spoke of this release in favorable terms, as it was higher than pre-release estimates discussed in the financial press earlier in the week. It is not good news.

The largest contributing factors to the downward revision were a reduction in investment and an increase in import growth. Fixed investment growth fell by 380 basis points and inventory investment fell by more than $12 billion dollars, which is a reduction in positive contribution to GDP of four tenths of a percent. Import growth was revised up from 28.8 percent to 32.4 percent.

There is no good news in this press release. It confirms my suspicions that the economy does not yet have its own legs. Without government stimulus, this economy might not grow at all. This does not mean that we should re-instate the stimulus programs, as they have their own problems. Continued debt-funded consumption is simply unsustainable, and it does nothing for long-term growth. If the pace of reductions in growth from quarter one to quarter two continue in quarter three, real GDP growth will be negative.

Consider the real estate data released this week: Home sales were down dramatically due to the expiration of stimulus. Real estate markets cannot generate significant sales at current prices without assistance. Since perpetual subsidies are impossible, and certainly not desirable, prices will fall, or volumes will remain low.

The Federal Reserve continues to offer interest on excess reserves, implying a very weak banking sector as well as an ongoing contractionary monetary policy.

Within the last week and a half we have also seen data that indicates the manufacturing and technology sectors are slowing. It is not clear to me what will drive U.S. economic growth during the next year or so.