Call it a slowdown, call it
recession, but don’t call it a depression. Not yet, anyway. In the first quarter of 2008, real
U.S.
gross domestic product increased by 0.9%, beating initial estimates of 0.6%, according to the Bureau of Economic Analysis. And while that is far from stellar performance, it could help to undermine the persistent pessimism that has dogged the
United States
and hammered the greenback.
“While the latest employment report showed a big jump in the unemployment rate, the details behind the rise, with some of it due to stronger labor force growth, were not quite as alarming. Meanwhile, Q1 GDP was slightly positive and the ISM reports have not been as weak as expected. So the overall economy has not collapsed yet,” says James O’Sullivan, senior economist for UBS. He expects to see continuing weakness in
U.S.
economic data for the next few months, and expects that this will qualify as a mild recession.
While the data is soft, Action Economics’ managing director of global fixed income Kim Rupert says she does not anticipate a
U.S.
recession. Her forecast is for 2% growth in the third and fourth quarters, and with the risk to the upside. “For one, we think that retail sales are ready to jump pretty high over the next several months. Both because of the stimulus package being spent but also because of gas prices. Even though it is a hardship on the pocketbook it will make the data look good. And corporate earnings have not been as bad as expected and it doesn’t sound like there is a lot of terrible angst among companies other than airlines and truckers.”
But for the skeptics, not being able to see the recession in the numbers is part of the problem and a drag on growth.
“We are in a tug of war between the real economy and the statistical measures of the economy,” says
Mike Kimbarovsky
of Advocate Asset Management LLC. While the Bureau of Labor Statistics (BLS) defines a recession as two consecutive quarters of negative GDP growth, he says the definition is meaningless because of the department’s ability to tweak data (see “Futures Interview,” page 32). “Recession is better defined anecdotally as a loss of economic power, whether it is spending or wealth,” he says.