Quote from GTS:
The uptick in first-quarter GDP may raise questions about the likelihood that an official recession will be declared. However, there is a common misconception that two consecutive quarters of outright declines in GDP defines a recession. Indeed, this supposed rule was violated in the 2001 experience. Instead, a recession is defined as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. The key for us is that all of the growth in the first quarter was attributable to an inventory swing. Final sales (GDP less inventories) actually declined 0.2% â the first drop since 2002. This means it is likely that the current environment will meet the definition of a recession.
âDavid Greenlaw, Morgan Stanley
We think that it is likely that GDP will decline in the second quarter. Inventory accumulation will likely turn negative again, while all investment spending categories should keep declining. And government spending growth will likely be softer. The consumer is the wild card. All key drivers of consumer spending are pointing down â employment, real wages, home prices, credit availability â but consumers are now receiving a temporary injection of spending power from the tax rebates. We suspect that these wonât kick in quickly and strongly enough to keep second quarter GDP growth positive.
âNigel Gault, Global Insight
These patterns should be an eye opener for those counting on a big push in consumer spending from the tax ârebateâ checks now in the mail. Aside from the portion of these funds that will be saved or used to pare down household debt, the lionâs share of what is spent will likely go towards gasoline, food, and household utilities, with little left for discretionary spending. To the extent that rising prices for such items is accounted for in the GDP price index, the impact on real GDP growth will fall far short of the expectations of many analysts. In short, the tax rebates will, collectively, get us a tank of gas and a 20-pound bag of rice at Costco (limit one per customer, please), and will do nothing to prompt sustainable growth in real GDP⦠As to the matter of whether todayâs GDP data rule out a recession, well, if you cling to the common but incorrect interpretation of a recession consisting of two consecutive quarters of contracting real GDP, then probably. If instead you adhere to the NBERâs standards for defining a recession, then certainly not.
âRichard F. Moody, Mission Residential
The anemic growth in the first quarter of the year was characterized by a modest rate of spending by households on the back of sharp headline costs, falling home prices and the prospects for year of flat income growth in 2008. Not coincidentally, the last time that households increased consumption at such a minimal rate was 2001, the last time the U.S. fell into recession. Moreover, gross private investment went negative across the board, in addition to another outsized decline in residential investment. Looking ahead to [the second quarter], firms will have to burn off the $1.8 billion in inventories sitting on the shelves. We expect that the coming inventory correction will send growth into negative territory, save a truly heroic effort by the U.S. consumer to spend their way out of the current malaise with their $600.00 rebates. The check is in the mail.
âJoseph Brusuelas, IDEAglobal
"There is no recession. Never was , never will be!"
- HedgefundTrader2
Hmmm...who to believe?
