And none of this means anything unless or until th
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Posted On: 02/04/2016 4:50:02 PM
And none of this means anything unless or until there are consecutive quarters of negative GDP.
You do recall that didn't happen, right?
One Step Back 11:02 AM May 29, 2014
How Worried Should We Be About the Negative GDP Report?
By Ben Casselman
We already knew the economy stalled at the start of the year. Turns out, it shifted into reverse.
U.S. gross domestic product, the broadest measure of goods and services produced in the economy, fell at an annual rate of 1 percent in the first three months of 2014, the Bureau of Economic Analysis said Thursday. That’s worse than the awful 0.1 percent growth rate the government reported in its preliminary estimate last month; it’s also worse than most economists had expected.
This kind of contraction isn’t unheard of, but it is unusual. This is just the 10th time since World War II that GDP growth has been negative outside of a recession. Three of those negative quarters immediately preceded recessions. (The National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.”
A common rule of thumb is that a recession involves two consecutive quarters of economic contraction, although that isn’t part of NBER’s official definition and not all officially recognized recessions have met that test.)
Rarity aside, there are some good reasons not to be too concerned by Thursday’s report.
The downward revision was almost entirely due to the always volatile inventories component: Companies added less to their storerooms than previously thought, which was bad for first-quarter GDP but probably means they’ll need to buy more products this quarter to restock shelves.
The brutal winter also played a big role in the weak start to the year, hurting everything from retail spending to exports; most economists expect a strong bounce back in the second quarter. (Indeed, a separate report released Thursday showed the labor market continuing to improve, with layoffs at prerecession levels.)
On the other hand, there’s a reason negative quarters are so rare outside of recessions: Ordinarily, a growing economy is strong enough to offset weakness in one or two sectors. During this recovery, that hasn’t been true. Two of those 10 non-recessionary negative quarters have come since the recession ended five years ago, the first time there’s been two quarters of negative growth during an economic expansion since the 1950s. That’s a testament to just how weak the economy has been the past few years.
Moreover, while the first quarter’s weakness may prove temporary, that doesn’t mean it was a fluke. Thursday’s report also provided a first look at gross domestic income, an alternative measure of the economy based on income rather than spending.
It showed an even faster 2.3 percent rate of contraction. Meanwhile, the housing market has been slowing down, worrying Federal Reserve Chairwoman Janet Yellen and other policymakers.
Thursday’s report isn’t a reason to panic, but it is another piece of evidence that the economy remains far from fully healed.
You do recall that didn't happen, right?
One Step Back 11:02 AM May 29, 2014
How Worried Should We Be About the Negative GDP Report?
By Ben Casselman
We already knew the economy stalled at the start of the year. Turns out, it shifted into reverse.
U.S. gross domestic product, the broadest measure of goods and services produced in the economy, fell at an annual rate of 1 percent in the first three months of 2014, the Bureau of Economic Analysis said Thursday. That’s worse than the awful 0.1 percent growth rate the government reported in its preliminary estimate last month; it’s also worse than most economists had expected.
This kind of contraction isn’t unheard of, but it is unusual. This is just the 10th time since World War II that GDP growth has been negative outside of a recession. Three of those negative quarters immediately preceded recessions. (The National Bureau of Economic Research defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months.”
A common rule of thumb is that a recession involves two consecutive quarters of economic contraction, although that isn’t part of NBER’s official definition and not all officially recognized recessions have met that test.)
Rarity aside, there are some good reasons not to be too concerned by Thursday’s report.
The downward revision was almost entirely due to the always volatile inventories component: Companies added less to their storerooms than previously thought, which was bad for first-quarter GDP but probably means they’ll need to buy more products this quarter to restock shelves.
The brutal winter also played a big role in the weak start to the year, hurting everything from retail spending to exports; most economists expect a strong bounce back in the second quarter. (Indeed, a separate report released Thursday showed the labor market continuing to improve, with layoffs at prerecession levels.)
On the other hand, there’s a reason negative quarters are so rare outside of recessions: Ordinarily, a growing economy is strong enough to offset weakness in one or two sectors. During this recovery, that hasn’t been true. Two of those 10 non-recessionary negative quarters have come since the recession ended five years ago, the first time there’s been two quarters of negative growth during an economic expansion since the 1950s. That’s a testament to just how weak the economy has been the past few years.
Moreover, while the first quarter’s weakness may prove temporary, that doesn’t mean it was a fluke. Thursday’s report also provided a first look at gross domestic income, an alternative measure of the economy based on income rather than spending.
It showed an even faster 2.3 percent rate of contraction. Meanwhile, the housing market has been slowing down, worrying Federal Reserve Chairwoman Janet Yellen and other policymakers.
Thursday’s report isn’t a reason to panic, but it is another piece of evidence that the economy remains far from fully healed.
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