With the latest GDP data release, and new data revisions going back to the end of 2006, America's latest recession has cemented its status as clearly the worst of the postwar period.
We'd thought the GDP grew by 0.4 percent in 2008. Now the Commerce Department says it flatlined. All this is worrying on two levels: First, bad economic news is bad economic news. And second, if you're a business deciding whether the economy is strong enough for you to begin taking risks again, there's not a lot here that'll push you off the ledge.
Q2 Nominal GDP was above forecasts and while it was heavy on government help and light on consumer spending, it wasn’t as alarming as the market made it out to seem initially. Of course 2011 is a different story when a lot of the government stimulus flames out and, with tax policy may reverse some.
I still think the recovery is going to pick up steam, not lose it...The private sector is investing at a rapid rate. This is the third consecutive quarter in which real private investment rose at an annual rate of over 25 percent. The second quarter number was 23.9 percent over the figure for the same quarter of 2009. The last time that figure rose as rapidly was in 1984, in the midst of a very strong recovery.
If things go well, the economy will be back to pre-recession levels in the 2nd half of 2011. No wonder there is so little investment. And no wonder there is so little hiring!
Politically, the issue is not whether the U.S. economy will slip into a double-dip recession though it is hardly out of the question for a negative GDP quarter to pop up this year. It’s how the economy will impact voter mood in 100 days. Will they think America is back on track toward prosperity with growth below trend and unemployment hovering around double digits? That seems unlikely to me.
Exports and nonresidential fixed investment were relative bright spots. But could they be enough to carry the economy into a sustained recovery without inventories and fiscal stimulus? The most pessimistic participant at the June FOMC meeting was calling for 2.9% real GDP growth for 2010 as a whole.
But I'll be relieved if we end up doing that well.
The WSJ rounds up reactions from economists. Here's Jay Feldman:
In the recoveries following the severe recessions of the mid-1970s and early 1980s, real GDP averaged 7% in the first year. Real GDP is up 3.2% from the recession low in the current recovery not even half as powerful as those episodes. Still, today’s recovery is beating the recoveries following the mild recessions of the early 1990s and 2001, where GDP averaged just 2.3% in the first year hence we are on a better path than the more pessimistic “U-shaped” or “L-shaped” forecasts.
What should really rock the boat is that the Commerce department did revisions across the full span of the pre-recession and post-recession period. While this big a revision across multiple quarters is not unprecedented, it will be an eye opener to many who commonly compare this recession to ones that occurred in the past two decades. What's now clear is those comparisons were apples to oranges. What we suffered in the past recessionthe depth of the contraction hasn't been seen since the 1940s.
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