Is "Recession" Over? - Second Quarter Growth Up 3.3%
The BEA surprised everyone today by reporting that the preliminary U.S. GDP growth for Q2 2008 was 3.3%, up significantly from the 1.9% increase it reported just a month ago. The increase was due to new data that came in this month, which showed much higher exports and lower imports, both a result of the declining dollar. Many investors hope this means an end to the recession, since a healthy growth rate is about 2-3%. (Source: GDP News Release)
Last quarter, economic growth was only .9%, but even that was up from the Q4 2007 economic decline of -.2%, which spurred renewed fears of recession. The definition of a recession is when GDP growth is negative for two or more quarters. Although it feels like we are in a recession, technically we are not since there has only been one quarter of negative GDP growth.
Growth for 2007 was 2%, down from the 2006 growth rate of 2.8%. This decline in growth has been due to the housing market slowdown and related weak consumer spending. For a review of the most recent GDP reports, see GDP Current Statistics.
What It Means to You
The spurt in Q2 growth was partly a result of the Economic Stimulus Package checks, mailed out in Q2. Since this was a just a one-time event, many are concerned that the economy will turn down again in Q3. Furthermore, export growth was driven by a weaker dollar, which has recovered slightly in Q3. Also, economies in the EU area and Japan are slowing, which could trim U.S. exports. (Source: FinFacts Ireland, Dr. Peter Morici: U.S. GDP Growth Up 3.3% in Q2, August 26, 2008)
However, Q3's rate of 3.3% exceeds the 2-3% range for healthy GDP growth. In general, the trend is your friend, and the trend for the economy is up.
Comments
Call me a pessimist but I think the Recession is a long ways from being over.
The next Administration has a huge financial challenge ahead. Keeping in mind that the U.S. annual gross domestic product is about $15 trillion:
• The Bush administration revealed America’s budget deficit will climb to a record high of more than half-a-trillion dollars.
• In order to bail out Fanny Mae and Freddy Mac , Congress increased the national debt by a whopping $800 billion sending it over the $10 trillion mark for the first time in history.
• Foreigners own $2.5 trillion more of American assets than Americans own of foreign assets.
• There are roughly $6 trillion in US dollar-backed assets around the world which could be quickly dumped if foreign holders of US dollars start selling their paper on the open market.
• The non-partisan Government Accountability Office that says the U.S. government faces a $53 Trillion shortfall to cover the costs of promised benefits in its entitlement programs: Medicare, Medicaid and Social Security.
Meanwhile, the U.S.’s national debt is expanding by about $1.4 billion a day — or nearly $1 million a minute.
No, I don’t think the Recession will be over any too soon.
There is NO recession. By definition, a recession is when the GDP is negative for two (or more) consecutive quarters. Real GDP growth has been positive for the past several quarters.
2008:
2Q : 3.3%
1Q : 0.6%
2007
4Q : 0.6%
3Q : 3.9%
2Q : 3.8%
1Q : 0.6%
2006
4Q : 2.5%
There is NO recession.
Technically, there is no recession.
However, with 6% unemployment, high gas and food prices, and housing and stock prices falling for the last six months, it certainly feels like one. Which is why I put “recession” in quotation marks.
Kimberly