"April 29, 2009
Good economic news?
Today's GDP numbers were about what I was expecting. Although economic activity continued its sharp decline, if we continue to follow the script, things should improve.
The Bureau of Economic Analysis reported today that U.S. real GDP fell at a 6.1% annual rate in the first quarter of 2009. That's enough to push our Econbrowser Recession Indicator Index up to 99.5%, its highest value since 1980:Q2. This index uses the latest GDP numbers to form a retrospective impression of the economy's status as of one quarter earlier (2008:Q4). We will declare the recession to be over when the index falls back below 33%.
Leading the retreat in real GDP was a 9.5% drop (quarterly rate) in nonresidential fixed investment. This was enough all by itself to subtract 4.7% from the annual GDP growth rate. There was a comparable drop in residential fixed investment, which subtracted another 1.4% from the implied annual GDP growth rate. The collapse in nonresidential fixed investment was what we expected, given the usual cyclical pattern of plunging business fixed investment in the later stages of an economic downturn. The drop in housing surprised me somewhat. If new home construction does no better than simply hold steady at its current abysmally low rate, the sector will stop making negative contributions to the growth rate.
Because imports are subtracted from GDP, falling imports made a big positive contribution to GDP growth, much of which was taken away by plunging exports. But it would be quite wrong-headed to summarize these twin developments solely in terms of their net implications for U.S. GDP. The simultaneous drop in imports and exports signals an accelerating collapse in world trade, which I see as the single most troubling detail of today's report.
On the bright side, inventory liquidation subtracted 2.8% from the quarter's annual real GDP growth rate, meaning that real final sales were substantially better than GDP. Most importantly, consumption rebounded from the depressed levels of 2008:Q4.
That last development is particularly key, since the historical pattern is for consumption to begin the recovery in the later phases of the recession, even as nonresidential fixed investment is headed down.
If you want to see that pattern of recession and recovery blown up on a bigger scale, you can look just at the downturn of 1981-82:
Here's how these series have behaved so far this time:
If this is all unfolding according to historical pattern, that's a source of comfort, because we saw how those earlier recessions ended. If consumption continues to grow, and if residential fixed investment has finally bottomed, then the 2009:Q2 decline in GDP should be milder than Q1, and positive growth by the end of the year could be in store.
Though I grant it takes a little imagination to see that in the graph above.