Patterico's Pontifications


Economy Sluggish but No Recession

Filed under: Economics — DRJ @ 12:22 pm

[Guest post by DRJ]

Hampered by the housing sector and rising food and gas prices, the economy grew at just 0.6% in the first quarter 2008 but that was enough to hold off the diagnosis of a recession:

“The bruised economy limped through the first quarter, growing at just a 0.6 percent pace as housing and credit problems forced people and businesses alike to hunker down.

The country’s economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday. The statistic did not meet what economists consider the classic definition of a recession, which is a retraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if modestly.”

The economy is weak and a recession cannot be ruled out but it looks like Beldar was right.


25 Responses to “Economy Sluggish but No Recession”

  1. That’s because Beldar is no dummy.

    EW1(SG) (84e813)

  2. It’s somewhat tougher these days to get a true recession, IMHO, because an important component of it is the inventory cycle: everyone builds too much of everything and we need to retrench while we sell off the old stuff and learn to produce different stuff.

    But as we move increasingly to a knowledge-based economy running a just-in-time inventory world, the inventory cycle, tho still important, diminishes in relative importance.

    IIRC, the StL branch of the fed did a study on this. Ah yes, here it is. An excerpt:

    Is there evidence that inventories played a smaller role
    in the past two recessions? The answer for the 1990-91
    recession is most likely yes. Indeed, although the decline
    in final sales in this recession was about the same size as
    the average of past recessions, the decline in inventories
    was smaller. In other words, the decline in real GDP in
    the 1990-91 recession was smaller than would have been
    expected given the decline in final sales and historical

    Of course, being somewhat tougher doesn’t mean it’s impossible, either 🙂

    ras (fc54bb)

  3. Beldar made another excellent point- the news media lies easily and shamelessly about economic recessions when they think that it serves a purpose.

    trentk269 (3d3bfe)

  4. ras,

    That’s interesting. From an economic and efficiency standpoint, isn’t it good that technology and innovation mean industries don’t have to build up inventories to the extent they did in the past?

    DRJ (a431ca)

  5. There was some fool on the Today show this morning who, in terms of deciding whether we’re in a recession, noted the 2 quarters of negative growth definition of the term and yet insisted that recession is a matter of how people feel about the economy. Thankfully her for, one cannot reach into the magic picture box and bitchslap fools.

    Pablo (99243e)

  6. What, from my standpoint, is more worrisome, is that the Fed cut the rates again today, which will only drive the Dollar lower, and the prices of commodities (gold, oil, etc) higher.

    If they keep this up, how long before $2000 gold, and $200 oil?

    The Fed is in denial on the inflation impact of oil and foodstuffs, and how their policies are affecting each.

    Another Drew (f9dd2c)

  7. From an economic and efficiency standpoint, isn’t it good that technology and innovation mean industries don’t have to build up inventories to the extent they did in the past?

    Absolutely. Capital costs and timeframes for starting up a biz are much lower these days than in the past. There are so many existing services and products now that, like Lego, can be used a building blocks to just about any biz, that one can switch from one industry/product to another far faster than we used to be able to.

    A recession is when we are idling, but if we can switch quickly, then idle time is minimized. It’s no guarantee against a recession, but it helps.

    ras (fc54bb)

  8. #4 trentk269:

    Beldar made another excellent point-

    Yes, he did. Although I’m inclined to think that at this point, it’s just reflexive Bush bashing.

    EW1(SG) (84e813)

  9. Another Drew,

    Agreed, but the govt sees it as a choice:

    1. If they support the dollar with stronger int rates, then millions of voters could lose their homes and never forgive them.

    2. If they inflate, then they only p-off the foreign bondholders while increasing Washington’s own political leverage (e.g. China, you better behave or we will inflate away the value of those iou’s we gave you that now constitute the bulk of your savings). It’s not a tough choice for a pol.

    Even better from their pt of view, if they can keep nominal house prices flat, then they can start moving housing back into the CPI. This would allow them loads of room to hide other inflation.

    Say, for ex, that you inflate at a real rate of 7%, but that by mocing housing back into the basket it comes out in the official stats as 3.5%, which 3.5% would be readily accepted by the voters as normal.

    In the meantime, the real rate of 7% cuts the govt’s own debt in half in about 10 years, or – rounding off in a big way – approx 2 presidential terms. The pols regain the room to increase spending hugely and bribe you with your own money again.

    I expect, once the bloom is truly off the housing rose (people think it is already, but no, not quite yet) that this is what will happen, that housing will get moved back into the CPI just for this reason.

    There have been … what? … 14 or 16 changes to the basket over the years, and every one of them caused inflation to be stated lower, not higher. Economists happily accept this, too, and readily compare basket 3 to basket 12 to basket 6 as if they were all the same thing when they’re not.

    If you call a tail a leg….

    Eschew for the moment whose fault it is

    ras (fc54bb)

  10. [Oops, the “eschew” line at the end of my prev comment was a cut and paste mistake. Pls ignore]

    ras (fc54bb)

  11. If we always grew at .6 percent per quarter, does that mean our economy would double in size every 30 years? That doesn’t sound so terrible.

    My math is: 1.006 ^ 120 > 2. However, I’m very naive when it comes to economics. Are my calculations fundamentally flawed somehow?

    Daryl Herbert (4ecd4c)

  12. How will Wall St. react to a possible Barry Hussein or Hillary presidency? That capital gains raising of rates in interest of “fairness” has got to be a ballbreaker. Funny how gas prices have soared since dems took control of Congress with promises to cut prices. Of course it is all Bushes fault.

    I’ve never seen much discussion of the effects of baby boomers’ retirements on the economy. This dude linked asserts that regardless of govt. policies we are in for some deep kaka. I have to wonder if we are not already on the cusp of much forthcoming financial pain. Plenty of homes here in S. Fla. are now 50% off their highs of three years ago with no bottom in sight.

    madmax333 (f2a4bf)

  13. Daryl,

    If memory serves, the GDP stats are, sigh, not adjusted for inflation. When we do that – as best we can – we find growth, but much less than stated. Perhaps some other commenters here know more about this?


    The first pol to tell the truth about Soc Sec will be maligned in the media but embraced by the public, cuz the public has already figured it out. All they need to do is to say:

    good news: you get to live a longer and healthier life
    bad news: we have to raise the retirement age

    And they can make it pro-choice, too: those who think this is unfair compared to the old way are welcome to retire for 2 fun-filled years, then jump off a cliff, per the original actuarial tables when the system was planned.

    ras (fc54bb)

  14. Daryl,

    A quicker approximation is the rule of 72. Divide your rate into 72 and that’s about how long it will take to double.

    e.g. ras borrows money at 6% annual interest. He pays nothing on it and the interest accrues. How long till he owes twice as much? 72/6 = 12 years.

    ras (fc54bb)

  15. ras: the GDP is adjusted for inflation and is the REAL GDP, sorry I don’t have the link on me atm, busy right now 🙁

    Verlin Martin (f359ef)

  16. The Democrats, taking a leaf from the 1992 playbook, will try to talk us into a recession to defeat McCain. In 1991-92, George Mitchell filibustered a cap gains tax cut to defeat Bush I.

    Mike K (6d4fc3)

  17. #13 SSA explicitly states that they cannot provide your actual benefit amount until you apply for benefits. THE LAW GOVERNING BENEFIT AMOUNTS MAY CHANGE.

    In my case full retirement is at age 66. If one takes an early payout at age 62, one receives 25% less per month than at age 66. I figure why not take it as soon as possible as the amounts paid to you for the four years prior to 66 as a sum would require you live until age 78 to break even. Ex. age 66 is $1300 a month. 25% less at 62 is $1000 a month. So figure you’ve taken in $48,000 in the four years prior to age 66. The extra $333/month you could have received by waiting would be the same if you matched it to the four years you collected less. And we are not considering what you might have earned on investing those four years prior to ’66. Anyway that’s my reasoning and since we have no idea what Congress may do in the future, I’m thinking get what you can now. If you drop dead prior to retirement, your estate can claim only a $255 burial benefit.
    Didn’t pols bitch at one time how SS was a ticking time bomb? Did not the evil Bush try to get reforms through Congress? My understanding is that the fed retirement benefits for pols is quite lucrative though. And still they want more from the public trough. Or special deals like Harry Reid and Pelosi make as two hypocritical examples of screwing the public unashamedly.

    madmax333 (f2a4bf)

  18. Hmmm. How long until we see the conspiracy theories from the online Left that the GWB administration is cooking the numbers to fend of the reprise of Bubba’s notorious 1992 campaign lie: “we’re in the worst economy of the last fifty years!” Paranoia on their part, but I almost wish it was true–they’ve had payback coming for that lie for a long time.

    M. Scott Eiland (b66190)

  19. Retirement income for a lot of seniors is tied to the rates set by the Fed. As they keep dropping their rates, the interest being paid to seniors for CD’s and other instruments drop, putting their retirement income in jeapordy as they have to roll-over.

    We can say that depreciating the Dollar is only going to hurt those foreign bond holders, but a lot of bonds are held here by both individuals and funds. But, since so much of our economy is tied to consumer spending, and we’re importing a huge gaggle of stuff to consume (not counting oil), everything becomes more expensive as the currency is depreciated.
    Next thing you know, you’ve got Wiemar.
    Not Good!

    Another Drew (f9dd2c)

  20. do you really believe the economy grew 0.6% in the first quarter? do you believe what the government tells you about the consumer price index too?

    assistant devil's advocate (a7f58b)

  21. ada must have got his new shipment of tin-foil in.

    Just proves that there are some people who refuse to believe water is wet, even after they’ve fallen into the river.

    Another Drew (f9dd2c)

  22. How timely. An excerpt from today’s post by Addison Wiggin at The Daily Reckoning…

    …The third leg of the debt problem, following consumer and business debt, is Uncle Sam. Government debt as of November 7, 2007, officially passed $ 9,000,000,000,000. That’s about $ 30,000 for every man, woman, and child in the country. This total includes debt owned by many types of investors, from individuals to corporations to Federal Reserve banks and especially to foreign interests. (By 2004, foreign central banks had stockpiled more than $ 1.3 trillion worth of dollar – denominated Treasury bonds and agency bonds at the Federal Reserve. By 2007, foreign debt had nearly doubled, to $ 2.033 trillion.)

    What the $ 7.8 trillion figure does not account for are items like the gap between the government’s Social Security and Medicare commitments and the money put aside to pay for them. If these items are factored in, the government debt burden for every American rises to well over $ 175,000.

    I’m in the early SS camp with madmaxx. Social Security…the ultimate mission creep. From its beginning as a ‘socialized insurance plan’ to help backstop the elderly in the hard-scrabble 30’s to becoming a full-fledged ‘retirement fund’ (albeit on the ropes and perhaps on the way back to its original function…unintentionally, of course). I’ll be overjoyed just to get back what I’ve paid in. And that’s not even considering those were much more valuable dollars back then. Excessive monetary creation does make for an interesting world.

    And in regard to laughing at all the idiot foreigners who have bought US debt to the tune of sometimes 2 billion a day…they can always take our trade based dollars and buy more oil, copper, and US assets for themselves instead of 30 yr Treasuries. Actually, they’ve already begun to do just that. So what is a debt addicted country to do? Print more money? Yes, Grasshopper.

    Anyone interested in the entire essay, it can be found at the Daily Reckoning site.

    allan (d5a880)

  23. Daryl, Ras:

    That 0.6% was an annual rate (or “pace” as the story put it in the first two mentions). The quarter-over-quarter growth would thus have been about 0.15%. The doubling of the economy would, at that rate, take about 4 times as long as you figured (116 years; of course, no one expects such rates to continue).

    Ras, these GDP growth figures are inflation-adjusted numbers. That said, when we have a big divergence among prices, the single inflation number becomes less meaningful for various types of individuals. Notably, poorer people spend more of their money on food and energy, and less of their money on “core” products. That means things are a bit worse (inflation is higher) overall for poorer people right now than indicated by such figures. And of course, things are a bit less bad overall for richer people.

    DWPittelli (2e1b8e)

  24. “ada must have got his new shipment of tin-foil in.

    Just proves that there are some people who refuse to believe water is wet, even after they’ve fallen into the river.”

    – Another Drew

    Yeah. Sure. The word of the Bush Administration is straight-up gospel, and anyone who believes otherwise is a tin-hat conspiracy theorist.

    And you’re the one arguing that we shouldn’t trust the government when it comes to the FLDS.
    (New Mexico Child Removal Case, Comment #1)

    Can you say “cognitive dissonance”?

    Leviticus (68eff1)

  25. No, Leviticus. In that Comment #1, I was warning about a repeat of the McMartin Case that happened here in SoCal (and was duplicated throughout the US in various locals, all relying on the same bogus methodology) – a witch-hunt focusing on day-care centers. We want to be careful that the facts the government are dealing with are true, and not the fantasies of some CPS bureaucrats.
    And, we’re talking about different levels of gov’t here. I don’t see the Bush Admin going in and seizing children – that was Janet Reno and Bubba.
    Plus, we have very reliable alternative sources on economic date – I think it’s called Bloomberg News, the Wall Street Journal, and others.

    Another Drew (a28ef4)

Powered by WordPress.

Page loaded in: 0.1228 secs.