The non-recession continues

posted at 8:58 am on June 27, 2008 by Ed Morrissey

Almost no one has reported on a surprising announcement from the Bureau of Economic Statistics yesterday.  While analysts keep talking about a recession, the GDP actually increased in the first quarter of 2008.  The modest increase — 1% — doesn’t indicate a great deal of economic strength, but it also shows that we have yet to see even one quarter of decline, let alone the two consecutive quarters of negative growth that has traditionally defined recession:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 1.0 percent in the first quarter of 2008 (that is, from the fourth quarter to the first quarter), according to final estimates released by the Bureau of Economic Analysis. In the fourth quarter, real GDP increased 0.6 percent.

The GDP estimates released today are based on more complete source data than were available for the preliminary estimates issued last month. In the preliminary estimates, the increase in real GDP was 0.9 percent …

A 1% annual growth rate won’t excite many people. It follows a quarter with 0.6% growth, making it the weakest two-quarter period in the last four years, as the chart demonstrates. However, this is hardly the worst economy we’ve seen in memory.  The 2000-2001 recession and the damage done to the economy after 9/11 was far worse than what we see now.  In fact, the slight rebound may indicate that the worst of the slowdown is over and that we may start seeing a return to the stronger growth we have experienced since 2003.

Remember this when politicians and the media talk about “the worst economy since the Great Depression”.   When the real numbers come out, no one bothers to report them.  The hyperbole serves them better than the truth.

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So many stock bargins, so little time.

spec_ops_mateo on June 27, 2008 at 2:20 PM

Just picked up some more Sirius myself.

RightWinged on June 27, 2008 at 2:26 PM

If I had to make a bet, (as we all do, of course), I’d say ECB rates stay the same. If they don’t coordinate the rescue, we’re sunk, and we’ll drag them with us.

JiangxiDad on June 27, 2008 at 1:26 PM

Hope you are right. In retrospect our Fed probably should have raised rates 25bp this Wednesday. It’s not as though keeping the rate at 2.00% saved the market or even the XLF. Currently commodity prices are driving the market lower not a lack of liquidity.

dedalus on June 27, 2008 at 2:52 PM

I`m up at 5 a.m. during the week and scan the early morning news on MSNBC. I enjoy picking up the not-so-subtle editorializing the anchor conveys. Today they said the stock market plunge was the worst since THE GREAT DEPRESSION!

So of course……we`re in the Great Depression now. Everyone got that?! :)

ThePrez on June 27, 2008 at 3:31 PM

So many stock bargins, so little time.

spec_ops_mateo on June 27, 2008 at 2:20 PM

Yeap they just got even cheaper today. Another 100pt decline. that’s about 550pt for the week. We have not had capitulation in the market. We have a ways to go down yet.

If you buy in this market make sure you have enough cash to double down when it falls more. I think it has another 10-20% to fall.

unseen on June 27, 2008 at 4:08 PM

ThePrez on June 27, 2008 at 3:31 PM

They got that talking point directly from Barry.

Buy Danish on June 27, 2008 at 4:09 PM

No, this is not the Great Depression, but higher gas prices make people nervous.

It is as if there is a cycle….higher oil..higher gas..lower interest rates…weaker dollar…slow down…higher oil and on it goes. If we could fin a way to break that cycle I think things would improve a great deal.

Terrye on June 27, 2008 at 5:42 PM

Terrye on June 27, 2008 at 5:42 PM

If we had an oil crisis without a housing crisis, or vice versa it would be easier to fix. But what do we do about the fact that high interest rates exacerbate the housing crisis, while low interest rates make the oil crisis worse?

Buy Danish on June 27, 2008 at 6:47 PM

Don’t tell O’Reilly, the negative bum!

wepeople on June 27, 2008 at 9:14 PM

But what do we do about the fact that high interest rates exacerbate the housing crisis, while low interest rates make the oil crisis worse?

Buy Danish on June 27, 2008 at 6:47 PM

You describe the rock and hard place Bernake and the Bush administration is stuck between correctly. But my take is that by defining the housing crisis as one that ordinary citizens are facing is what has led us to this impasse. Housing speculators, and those with little or no money down, teaser rates, etc. are paying the price they should pay in our capitalistic risk-taking system. The same could have been said for the Wall-Streeters.

I know, I know, they threatened to take the whole banking system down with them. So nobody had to pay the piper, so now we all do.

The banking system is what failed, the politicians and regulators failed. The system failed. The price for that is now being paid in real dollars by you and me, and reduces our standard of living. The raise or lower interest rate conundrum we face is just a side-bar of the larger problem.

If you’re looking for a solution where we don’t have to pay, I’m afraid it doesn’t exist. Look for opportunities in the stock market in the month ahead. That’s about it.

JiangxiDad on June 28, 2008 at 8:48 AM

Housing speculators, and those with little or no money down, teaser rates, etc. are paying the price they should pay in our capitalistic risk-taking system.

Unfortunately all of us are paying the price. I don’t give a flip about people who took out zero down/adjustable rate loans (loans which were promoted by Obama’s pals at ACORN); I care about people like myself who put 20% down and took out 30 year loans, only to have hordes of irresponsible people move in next door – thus making my own house worthless.

The coup de grace are proposals to give generous tax deductions to people who buy foreclosed homes. Those tax deductions only further reduce the value of non-foreclosed homes since it’s impossible to compete against those tax deductions without lowering the price of your home, should you need to move and sell for any reason.

So yeah, I blame politicians and “community activists” first and foremost. The banks are not innocent, but they did have a gun to their head to provide these sorts of loans.

Buy Danish on June 28, 2008 at 9:59 AM

You describe the rock and hard place Bernake and the Bush administration is stuck between correctly
JiangxiDad on June 28, 2008 at 8:48 AM

And thus we get to the end game. This is what happens when you say “suck it up”

The government has one option left as far as the dollar goes and that is intervention. The problem is that if that doesn’t work we facve the very real threat of run away inflation and massive defaults like Argentinina had last decade.

The answer as any person that does a budget knows is we have to cut spending and increase income.

The best way to increase income is to drill here,tap ANWR, tap the oil shales. this increases our income as a nation making our dollar stronger (it will also mean less dollar shipped overseas). Ask Canada and Austrilia what oil and minerals have done for their dollar.

Drilling will also increase future supplies and bring oil down today.

Spending on non esstentials government outlays think pork should be cut. With 3 triilion in tax rev the gov should be able to get in the black. With rates at or close to historic lows the gov should start issuing 30 and 50 year T-bills and refinance our debt load at lower rates for longer terms. The interest the gov would save could be used to decrease tax rates which would spur economic activity. With increase economic activity, increased assets and less interest payments the dollar would rebound.

With an increase in the dollar forgein countries would have a stampeded to buy American assets before the dollar went to high. The increase in forgein buying would cause the dollar to go up more and all this would cause oil to drop.

unseen on June 28, 2008 at 10:27 AM

The fecal matter has yet to hit the rotary air oscillator…when it does, ooohhh baby.

Wyznowski on June 28, 2008 at 11:07 AM

The idea of being a leader is to look at the signs, then make adjustments to head off any problems.
Just because we are not in a recession, does not mean that is the path we are heading.
The statement “the stocks will bounce back” is great, if you are the eternal optimist, but a good leader doesn’t lead my wishes and dreams, he prepares for the worse.
Three major areas are dragging us down (and the facts may be balanced in such a way that those two don’t have as much impact as they should), fuel (cars, trucks, heating), energy (manufacturing, expansion), and housing (social stability, personal worth)…if those three are all suffering, point out three others that are worse. There are only a couple, un-employment overall economic growth, maybe the most obvious. So out of the top five we have three that are in reversal. And you don’t think the three can effect the other two, or you think the other two will “override” the other three?
A leader doesn’t take chances, they step out and lead…before the collapse, not after.
It is not where we are now that is so important, it is where are we heading…

right2bright on June 28, 2008 at 11:29 AM

BuyDanish/Unseen:

Can’t disagree with anything you’ve said. I don’t like living this close to the cliff edge.

JiangxiDad on June 28, 2008 at 11:53 AM

Just more proof the media cares nothing for FACTS!

SouthernGent on June 28, 2008 at 12:36 PM

Remember this when politicians and the media talk about “the worst economy since the Great Depression”. When the real numbers come out, no one bothers to report them. The hyperbole serves them better than the truth.

Come on Ed, are all the economists and analysts on Wall Street trying to manipulate public opinion as well?

People on Wall Street will tell you this is the most severe crisis that’s occurred in their lifetimes. The entire banking system is under nearly unprecedented duress and the nation might be standing at the precipice of runaway inflation. From a structural standpoint, things are far, far worse than after 9-11. The slowdown following 9-11 resulted from a decline in business activity, not a liquidity crisis. WaMu and other major banking stocks down 90% over the past year doesn’t signal a minor slowdown in the works.

As for 1% economic growth, many experts believe that the booming energy and materials sectors accounts for more than 1% of economic expansion. (Energy production and service companies, along with commodity producers, are doing extremely well.) Meaning that without high energy and raw materials prices, this economy would be witnessing negative growth. So that 1% number is probably an allusion. On Main St., you’re going to be hard pressed to find businesses that are witnessing anything but a slowdown. And guess what- the big tax rebate stimulus is going to run out of steam soon.

Believe me, these events are causing me as much economic pain as most everyone else. But let’s not pretend everything is ok.

bayam on June 28, 2008 at 1:24 PM

I don’t know anyone who dosent have a job. The economy is just fine, and has been for years.

tx2654 on June 28, 2008 at 1:46 PM

The price index for gross domestic purchases, which measures prices paid by U.S. residents,
increased 3.6 percent in the first quarter, 0.1 percentage point more than the preliminary estimate; this
index increased 3.7 percent in the fourth quarter. Excluding food and energy prices, the price index for
gross domestic purchases increased 2.3 percent in the first quarter, the same as in the fourth. About 0.3
percentage point of the first-quarter increase in the index was accounted for by the pay raise for federal
civilian and military personnel, which is treated as an increase in the prices of employee services
purchased by the federal government.

These are all annualized numbers.

Do you believe that inflation is increasing at 3.6%? This is important because Nominal GDP – GDP deflator = Real GDP. The fudge factor is the GDP deflator and I think that inflation has been much higher than 3.6%, north of 5%. If that is right then we have been in recession for the past two quarters which would officially make this into a according to Hoyle NBER recession.

Bill C on June 28, 2008 at 1:48 PM

I don’t know anyone who dosent have a job. The economy is just fine, and has been for years.

tx2654 on June 28, 2008 at 1:46 PM

Ok, Pauline Kael.

The gov’t should farm out its statistics gathering. Underestimating inflation is in their interest, see COLAs.

Now that inflation is running up you should expect to see interest rates rise which will be the horrible for housing. We are in recession but it will be apparent to everyone by the end of the year.

Bill C on June 28, 2008 at 2:15 PM

Gas, gas, gas.

If that bubble bursts and gas can get down to a reasonable $3 or so a gallon, we should be able to weather things. But the psychological impact of high gas prices squelches the animal spirits and slows the economy.

Remember the question: What do economists wish to economize?

Answer: Love.

After all, self-interest rightly understood is the basis for our economy.

Yes, this is stream-of-conscience posting on my part.

SteveMG on June 28, 2008 at 3:00 PM

SteveMG on June 28, 2008 at 3:00 PM

Yes it is gas. I become a permi-bear on this economy when oil went to $125.00. The ecomony can not withstand $4.00gal/gas and $5.00/gal/desiesl

I was worried about a market crash before the bear streans bailout. Because of that bailout the FED safed the market and the economy. However with gas at $4.00/gal our “leaders” still do not seem to see the problem. there is no crisis team working on it, no quick drilling bills being voted on, no release of oil from the SPR, No nothing. Until our leaders see the problem it will just get worse. the rise in oil is signalling to anybody that doesn’t have their head up their a** that serious problems are coming down the pike.

The dems want to blame the speculators. It is the speculators that are the carney in the coal mine and they are warning us of potential massive harm coming. Yet the dems want to kill the carney so they can aviod the facts of what is coming.

unseen on June 28, 2008 at 3:55 PM

Captain:

The Fed bailed out Bear Stearns, but it can’t bail out Citigroup or CountryWide or Bank of America or WaMU – all of which are on the precipice of insolvency.

When credit is hard to get, the economy slows. No credit for TVs at Best Buy, No operational loans for hospitals or school districts. Car loans and home loans become tough even for folks with good credit.

Fedex says shipments are down. JD Powers is predicting a horrible car market, Florida and California are planning on laying off thousands of teachers.

Just what part of the economy is expanding, hmm?

Wal-Mart – the store of choice when your wallet is a little light.

And of course farmers are getting the best prices ever, except those whose crops flooded. Yet along with high prices for crops are high costs for diesel, which definitely is stealing icing off the cake for them.

But hey, I’m lucky – I’m in one of those rare markets where my house value is holding steady, and our investments are only down between 5 and 12 percent since last year. Gee, if I had listened to Cramer last fall and bought financial stocks, I’d be down 50-70 percent, and waiting for the next round of capital raising to further dilute my investment.

Yep. Things are going great and all Congressmen are pure of heart, especially those friends of Angelo Mozillo.

Not.

olddeadmeat on June 28, 2008 at 7:15 PM

The Fed bailed out Bear Stearns, but it can’t bail out Citigroup or CountryWide or Bank of America or WaMU

It can and will bail out all the above if necessary. The economic dislocation and high cost of FICA guarantees makes it more expensive to let a bank fail than ti find additional capital. The government has a few friends in Dubai and Saudi Arabia who might be called to help with another bailout. Or Warren Buffet is always game to invest in a traditional bank as long as the price is right and the subprime and derivatives exposure can be accurately priced.

Although I agree that the stock market appears to be pricing banks like WaMu for bankruptcy at 4.50 a share. It’s really unbelievable.

When credit is hard to get, the economy slows. No credit for TVs at Best Buy, No operational loans for hospitals or school districts. Car loans and home loans become tough even for folks with good credit.

Fedex says shipments are down. JD Powers is predicting a horrible car market, Florida and California are planning on laying off thousands of teachers.

Just what part of the economy is expanding, hmm?

Look at the stock market- it tells you that energy and raw materials companies are on fire. That’s the only reason the economy is showing any growth. Just about everyone else is hurting.

bayam on June 28, 2008 at 8:46 PM

By virtue of having spent a career in the military I have seen true hardship around the world…Would you believe that we occasionally killed people trying to collect metal fragments from bombs on active bombing ranges in the Phillippines. They were trying to collect the fragments between bomb runs…By comparison many here are saying the sky is falling because of 5.5% unemployment and four dollar gas…We are the richest country in the world. Pick your metric…We have 5% of the world’s population yet thirty percent world GDP, thirty percent of the world’s millionaires, and thirty percent of the global 500 largest companies in the world…This is still the land of opportunity. The moral of the story is that if you can’t make it here YOUCANTMAKEITANYWHERE! You cannot imagine how hard it is to provide for your family in most places around the world…You may be brilliant and hardworking but if there is no business to hire you, you don’t work…Maybe you collect metal fragments, hammer them into implements and sell them on the street corner…Stop wanking! It’s un-American and discredits our ancestors who worked so hard to make the most of this free country which was once seen as a gift from God…

Nozzle on June 28, 2008 at 9:04 PM

news on MSNBC. I enjoy picking up the not-so-subtle editorializing the anchor conveys. Today they said the stock market plunge was the worst since THE GREAT DEPRESSION!

Sorry to bust your little ‘liberal media is after us’ bubble, but that story was originally broken by Bloomberg and is completely accurate.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aT.gUZndgG7k&refer=home

bayam on June 28, 2008 at 9:45 PM

bayam on June 28, 2008 at 8:46 PM

exports are working also due to the weak dollar. however if the USa slows down I think the rest of the world will too. cracks are starting to so in the EU and china.

Nozzle on June 28, 2008 at 9:04 PM

in 1929 the economy was doing great also. It does not take much to push an economy into a recession or a depression. $4.00/gal gas is a very big deal. Unemployment while low is increasing and can increase drasticlly, quickly.
there are very ligitimate concerns out there. Failure to address those concerns can and will lead to very bad places. If nothing else failure of the Repubs to understand the problems with the economy will lead to a dem takeover of government which IMO will push us right over the edge.
This discussion that the rebups want to make that it isn’t a recession while technically right misses the point by a country mile. Things are very bad out in the heartland. A large part of the population is holding on by their fingernails. Already this is seen by the subprime mess, the defaults on credit cards, defaults on auto loans and the increase in credit card balances. These are all INDICATORS or WARNINGS that things are not good out there.

Pretending erverything is all right or comparing America to 3rd world nations and saying compared to them we are fine misses the point.

IMO we are standing on the cliff in the market, in the economy, and in our leadership of the world. Many enemies are arrayed against us. this include some of the opec countries, Russia, China, the terrorists, some of the liberal commies in the democratic party. There is an active economic war going on.

Everytime oil drops our enemies like Libya or Iran get up and talk the oil back up. Until are gov understand this is an economic war and does something to counterattack these dictators (like saying we will drill, release SPR oil etc, telling the commies environmental wackos to sit down and shut up ) they will continue to win the war.

unseen on June 28, 2008 at 10:24 PM

It is the speculators that are the carney in the coal mine and they are warning us of potential massive harm coming. Yet the dems want to kill the carney so they can aviod the facts of what is coming.

unseen on June 28, 2008 at 3:55 PM

Ithink you meant canary but the image of a carney in the coal mine is pretty funny.

Bill C on June 29, 2008 at 2:21 AM

Stop wanking! It’s un-American and discredits our ancestors who worked so hard to make the most of this free country which was once seen as a gift from God…

Nozzle on June 28, 2008 at 9:04 PM

We have squandered our inheritance on cheap credit and an entitlement economy. The bill collector is at our door and he is the very people we have helped in the past but we should expect no mercy. No whining, just the truth. The US of A is the world’s biggest debtor nation.

Bill C on June 29, 2008 at 2:25 AM

For those who are seriously interested in understanding the current investment climate, I recommend this webcast by Liz Ann Sonders, Chief Investment Strategist at Charles Schwab. She is not a market timer, but an advocate of diversification and asset allocation, which, in my opinion, is the only sensible way to invest.

RedWinged Blackbird on June 29, 2008 at 7:38 AM

Is that 1% growth before or after inflation and does the government use their own bogus inflation numbers in the calculation? You know, the numbers that sort of don’t count fuel or food….

JIMV on June 29, 2008 at 12:47 PM

“Well, dave742, I looked at the chart you linked to. And I noticed that the lowest inflation calculated by it is 8% since 1996. Now, 1.08 to the eighth power is 1.85, but given that some of the inflation rates given are closer to 12%, the chart would imply that prices have more than doubled since 2000–which is clearly false.

A little math could help you avoid utter nonsense.

thuja on June 27, 2008 at 10:02 AM”

Are you sure…home prices have about doubled and car prices are up in the high double digits. Gas is uo almost 100% and home heating fuel is way up. What cost $80 a week at the grocery store in 2000is now $140 or so.

JIMV on June 29, 2008 at 12:52 PM

“So the stock market losing 20% is just a figment of our imagination and its good times out there?”

I would say one of the major reasons the stock market is tanking is the Obama campaign. First he is promising to increase the capital gains tax so people with significant stock market profits are going to cash those in this year so they can have the current tax rate on those gains.

Secondly, Obama is promising a boatload of “change”. If you want to freeze business investment, expansion, and hiring in its tracks, all you have to do is promise “change”. Until business gets some idea of what the new rules are going to be, they aren’t likely to make a lot of new investment.

Obama’s own promises are clobbering the economy.

crosspatch on June 29, 2008 at 10:14 PM

Is there a back story of hedge fund shenanigans with respect to the “BS” failure and bailout?

Inquiring minds would dare to know!

J_Gocht on June 30, 2008 at 9:43 AM

I don’t trust Obama, and I am certainly NOT going to vote for him.

But to suggest that Obama is responsible for the stock market diving is nonsense.

Business investment is freezing up because credit is freezing up. No one trusts the banks, and no one wants to invest until they can see how bad the crash is going to be.

You wanna know why speculators are in oil? Because buying a security from an investment bank is every bit as safe as playing 3-card Monty with a street vendor in Manhattan.

The seeds/weeds of this crash were planted years ago. The failure to enforce the rules that might have prevented these problems magnified the crisis.

We learned nothing from Enron, but the banks copied Enron’s techniques and have now built an even bigger house of cards that is now about to collapse.

It’s all predicated on deception – the banks have no incentive to come clean with their losses now, and the agencies that could/should have compelled disclosure months or years ago are conniving in the deception to “prevent a panic.” They are blaming speculators.

Too late for that. The house of cards is about to fall, and the banks are desperate for a bailout – whether by propping up bubble prices for houses or by getting taxpayers to buy bogus securities that are carried on banks’ books at at 10 or 20 times their actual value.

Because there was no enforcement, the banks gave into the temptation of greed and deceived their investors and their customers in pursuit of ever bigger bonuses.

There are times and places where you need gov’t, and policing the market is a necessity. Markets have to be honest, and they don’t do that by themselves.

I believe in free markets, and I do believe that regulation should be minimized. But you still have to have some regulation, and those regulations HAVE to be enforced.

The SEC should be hiring right now – there are going to be plenty of good resumes to choose from.

Actually, now that I think about it, Obama winning the election would be the best thing possible for the GOP. The next 4 years are going to be awful no matter who is in charge, and Obama will be sworn in just in time for GWB to hand him a huge bag of crap that will bust open and ruin his presidency.

olddeadmeat on June 30, 2008 at 11:55 AM

crosspatch on June 29, 2008 at 10:14 PM

while I would agree the uncertainity of a BHO president and a dem controlled congress is causing some to toss in their stocks during this downturn. The charts of the dow and sp500 show that the markets toped out of its lastest rally on 5/19/08. this was an important day because that was when oil took off and smashed records. since then the market has been trading with oil.

the major thing now is oil. sure the credit troubles and the banks are playing a role and making the sell off worse. and BHO rise in the polls are making people who normally would stick it out decide it might be a good time to sell. But it is oil

Harry Reid says oil and coal makes us sick. I wonder if he has any idea of the inventions that oil and coal has enabled in the last 100 years. From air travel to plactics to the microchip without oil and coal none of the modern marvels that save lives on a daily basis would be possible. we would not have the life expectantcy we have if not for oil.

Oil is a gift from above and as long as it is used in correctly saves lifes and cures people.

The dems must be beaten this election or we will know what misery is.

unseen on June 30, 2008 at 8:12 PM

olddeadmeat on June 30, 2008 at 11:55 AM

The credit problems are a part but the FED has stated they will not let big bans and brokers fail. The latest downturn is due to oil mostly. The credit and housing is just pile on time for the shorts in the market.

Free advice if you haven’t sold yet use this weeks/next weeks short covering rally to sell whatever you have in the market ahnd sit on the sidelines until we know what oil is going to do, what the banks are going to do and if the dems run the table come NOv

unseen on June 30, 2008 at 8:15 PM

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