Thursday, January 31, 2013

Is the US Economy Heading Toward Another Recession?

The standard definition of a recession is two quarters of negative growth.  While the economy has very slowly grown for the past three years, in particular for a recovery coming after a major recession, at least it has grown.  Recent reports show the economy during the last quarter of 2012 shrank for the first time since the Great Recession.  CNNMoney reports:
Gross domestic product, the broadest measure of the nation's economic growth, contracted at an annual rate of 0.1% from October to December, the Commerce Department said Wednesday. It was the first quarterly contraction since the second quarter of 2009, amid the Great Recession.

While a contraction is never encouraging, economists pointed to temporary effects that may have caused a one-time dip, and they see better growth ahead.

It's "the best-looking contraction in U.S. GDP you'll ever see," Paul Ashworth, chief U.S. economist for Capital Economics said in a research note. "The drag from defense spending and inventories is a one-off. The rest of the report is all encouraging."

A large cut in federal spending, primarily on defense, was one of the biggest drags on growth. Defense spending contracted at a 22% annual rate.
Besides those cited above, the article is filled with additional excuses why this quarter was an anomaly.  While economists are generally predicting the slow 2% to 2.5% economic growth the U.S. has experienced during the recovery will resume next quarter, if it falls short alarm bells of a new recession will be set off.

4 comments:

Gary R. Welsh said...

Who says the first recession ever ended, Paul? I would argue the economic evidence suggests the first recession never ended.

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