Why We May Already Be In Recession!

Economics / Recession 2008 - 2010
Aug 27, 2010 - 02:34 PM

By: Sy_Harding

First let’s look at the trend.

After an unusual four straight quarters of negative growth in the severe 2008-2009 recession, the recession ended in the September quarter of last year when GDP managed fragile growth of 1.6% for the quarter, and then improved to 5.0% growth in the December quarter.

It was understood that much of that growth was temporary, fueled by government spending, and spending by consumers provided with government bonuses and rebates, as well as temporary rebuilding of inventories by businesses. But it was expected that with that jumpstart the recovery could continue on its own legs.

So, it was a bit of a surprise when GDP growth slowed to 3.7% in the March quarter of this year while those programs were still having an influence. But economists still expected the economy would grow at a 3% pace in the June quarter even with those programs winding down, and for the rest of the year.

So, it was a real disappointment when 2nd quarter growth was reported a month ago as having been only 2.4%. And when additional data became available for May and June, the last two months of the 2nd quarter, and those reports were increasingly negative, economists predicted that Q2 GDP growth would be revised down to only 1.3%.

On Friday, the revision was released, and it showed Q2 growth slowed significantly, but only to 1.6%, not as bad as the latest forecast.

The media and the stock market, starving for good news, and short-term oversold after being down 10 of the previous 13 days, took it as a positive.

But let’s get real.

The issue is not whether economists got their forecast right or wrong, but the degree to which economic growth is slowing. And a trend of 5% growth in the December quarter, followed by a 1.3% decline to 3.7% growth in the March quarter, followed by a 2.1% decline to 1.6% growth in the March quarter is a chilling rate of decline.

Now factor in that economic reports so far for July and August, the first two months of the 3rd quarter, have been significantly worse than those of May and June, and significantly worse than economists’ forecasts, with the relapse pretty much across the board; in the housing industry, manufacturing, retail sales, consumer and business confidence, the decline in U.S. exports, and so on.

It’s not a stretch then to think that economic growth is declining by another increment of more than 1.6% this quarter, which would have it in negative territory, already in recession.

In his speech Friday morning at the annual economic symposium in Jackson Hole, Wyoming, Fed Chairman Bernanke, while saying he still expects the economy to grow in the second half “albeit at a relatively modest paceâ€