If it Quacks Like a Recession...
The BEA reported that the preliminary U.S. GDP growth for Q1 2008 is revised slightly up .9%, higher than its Advance report of .6%, and up from the Q4 2007 report, also .6%.
Economic growth has plummeted from 4.9% in Q3 2007, and 3.9% in Q2 2007. The total GDP for 2007 was 2.2%, down from the 2006 growth rate of 2.9%. The decline in growth has been due to the housing market slowdown and related weak consumer spending. (Source: GDP News Release)
The last time GDP was this low was in Q1 2003, the tail-end of the last recession. A healthy growth rate is about 2-3%. For a review of the most recent GDP reports, see GDP Current Statistics.
What It Means to You
Technically, the U.S. economy is not in a recession, which is two quarters of negative GDP growth. However, it feels like a recession thanks to three factors:
- Record high oil, food and gas prices, which reduces discretionary income.
- Home sales are down 19%, and prices are down 8%, year-over-year, which means homeowners can no longer tap their home equity for extra cash.
- The number of unemployed is up 765,000 over last year, creating further feeling of job insecurity. Most reports indicate that the checks received from the Economic Stimulus Package have gone towards paying off debt or towards savings, neither of which is a shopping spree, and both of which "feels" like a recession. (See How Are Women Spending Their 2008 Tax Stimulus Checks?)
So, whether the economy is in a "technical" recession or not, if it looks like a recession, and quacks like a recession, to everyone but us technically-inclined purists, it IS a recession.
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Comments
I agree that the gas prices have reached a level that the upper middle class is beginning to really feel. Lower to middle class families have already felt it.
And the food prices have understandably followed the price of gas upward. Corn is markedly up due to the onset of larger portions of the corn supply being funneled toward ethanol production lowering the corn available to the food supply.
As far as impact of home sales and prices, tapping into your home equity is another way Americans like to go into debt without feeling like they are going into debt. We all know why the housing market is where it is and, frankly, shame on us for taking it there. We deserve it.
Unemployment numbers, although up, are still at an acceptable level overall (easier to say when one hasn’t been directly affected).
I feel like all this quacking about recession is proving the old adage that “if you say it enough, people will believe it”. There have been a lot of folks doing a lot of quacking about recession since Q3/Q4 2007 striking fear into the people causing them to hold onto more (not a bad thing altogether - it’s one way to teach Americans how to save) and spend less aiding the slowdown of the economy.
Oil prices are the key to all of this, in my opinion.
Hi Nate,
All good points. My only concern is that the durable goods report is trending down, indicating we may not be out of the woods yet.
However, I still don’t think we will actually experience a technical recession. Instead, I think it will feel like a recession to a lot a people for quite some time.
Kimberly
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