This is yet another post I should have done last week. Still waiting has allowed me to do some more analysis and allowed another set of numbers to trickle in.
Let’s start with this graph. This is the graph of the latest GDP revisions for the last 13 quarters.
That is ugly. Just about every quarter was revised downward from the previous release. Most of them significantly. It also shows that what little “recovery” we had ended after Q1 2010, 18 months ago. That’s when we peaked at +3.9 GDP.
In case you’re wondering, the previous GDP numbers for these quarters (up to Q12011) were +0.6, –4.0, –6.8, –4.9, –0.7, +1.6, +5.0, +3.7, +1.7, +2.6, +3.1, and +1.9. The average revision (ignoring sign) was about 0.9. These numbers were taken directly from the BEA spreadsheet which you can find here.
Here’s another look at those same numbers, compared to the Carter/Reagan recession (h/t Liberty Works):
The red bars represent the Reagan recovery and is fairly typical of what you’d see coming out of a major recession. To say that President Barack Obama’s (D-USA) recovery has been anemic is putting it mildly.
The numbers for the latest two quarters, +0.4% and +1.3% came as something of a shock to most economist and news agencies. Up until about a month ago, we were hearing projections exceeding +2%. In the last month they started to drop off a bit, and you started hearing numbers like +1.9%, +1.8% and even the occasional pessimistic +1.5%.. So, 1.3% was quite a shock.
I’m not sure why, though. Every single economic indicator pointed to a worse number than Q1 (previously thought to be +1.9%). Unemployment was trickling upwards, we had the Japanese quake, continuing slowness in the housing market, high inventory, and slow manufacturing. Other than some recovery in the Japanese markets, all of these things are ongoing as well. Based on that, and the Q1 number of 1.9%, my own guess at Q2 was +1.2%.
So, I hit the number almost exactly. Except a big part of my number was based on Q1 being +1.9%. Now it’s been lowered to +0.4%. We won’t know exactly why on that until the details are released later this week. But I will state for the record that it would be extremely unlikely for Q2 to be better than Q1 based upon what we know now. So, expect either Q1 to be revised back upwards somewhat, or Q2 to be revised downward. Or some combination of the two. Next revision is at the end of this month, on 8/27.
So, the economy sucks. But then we knew that already. Can we make any guesses about the future? Well, we can add two more interesting numbers to the mix, the year-over-year growth for the last four quarters, which works out to be +3.7%, and the annualized growth over the last two quarters, which works out to be about +1.7%, according to the spreadsheet linked above.
Why I do I point out those numbers? Well, there’s a relatively new buzz phrase in measuring economic strength that you may have heard, called “stall speed”. People have talked about stall speeds for economies for some time, but the idea was given little credence. Basically, it’s the theory that before the economy tanks completely, there are indications that the economy has flattened, or stalled.
People have been talking about this due to a paper from back in May by an economist at the Federal Reserve named Jeremy Nalewaik which analyzed previous recessions and previous periods of growth to determine if there was any truth behind the idea of stall speeds. Nalewaik is an economy research wonk. He leads the curve on just about everything he puts out. If you start hearing any new buzz phrase on the financial channels, chances are he put out a paper about that topic in the last 3-6 months.
I won’t bore you with the paper, but will just provide this little bit of summary from James Pethokoukis.
More importantly, it means we’re in the danger zone for another recession. Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.
Well, our last two quarters are at +1.7%. Which is below that +2% number. And I still think that number will go down. The last 4 quarters looks better, +3.7%. Far above the magical +2% number.
There is little doubt that, since the summer of 2010, U.S. growth has faltered—the only question now is how much weaker could things get and how long will the (very) “soft patch” last. His Global Insight now expects that growth in the third quarter will come in much weaker than previously expected—probably less than 2 percent and possibly less than 1 percent.
This all tells us that at the very least, we are teetering on the brink of the “R” word. It’s basically a coin flip at this point whether we enter one. If anything else happens, inflation, global economic turmoil, another 9/11, or another Katrina, we almost certainly tip into one. If you’ve been following this blog, you know that I think there’s a high likelihood of at least one of the first two happening (read my posts on Italy, Greece, and QE2).
The Nalewaik paper also notes that GDI (gross domestic income) may be a better predictor of recessions than GDP. If I’m understanding the BEA website correctly, the GDI report comes out today.If we do enter another recession later this year, conservatives thinking about careers in Washington, D.C. should start sending out résumés to the GOP Presidential candidates and their staff. There will be a lot of job openings in January, 2013.
UPDATE: The GDI numbers were released. And they’re not good. Will likely blog about this in the next couple days. But the AP report can be found here.