Is a recession in the cards?
It may arrive this summer.
The government cut in half its estimate of economic growth in the first quarter, reporting the slowest rate of expansion since the end of 2002....
Growth advanced just 0.6 percent, compared with an initial estimate of 1.3 percent. The chief reasons for the revisions were adjustments to the estimates of imports and business inventories. Imports, which subtract from the gross domestic product, were stronger than the government first thought. At the same time, businesses cut production and accumulated smaller inventory stockpiles.
If you glance at the accompanying graphic, you'll see that it's a big slowdown compared not just to a year ago but also compared to last quarter. And inflation remains a problem (rising at an annual rate of 2.2%), which limits what the Federal Reserve can do to stimulate the economy.
If the trend continues, the second quarter figures -- due out in July -- could show a contraction. The story notes, however, that most economists think the second quarter will show an improvement, thanks to positive news in consumer spending (up more than expected), the housing market (thus far, less bad news than expected), manufacturing output (expanding) and exports (thanks to a weakening dollar). In addition, employers added 157,000 jobs in May, up from 88,000 in April.
But they don't call economics "the dismal science" for nothing: that good news has clouds. Consumer spending, besides being fueled largely by debt, is expected to slack off, the housing market fallout is expected to deepen, a weaker dollar makes things more costly for consumers, and even at 157,000 the number of new jobs is barely keeping up with population growth. And inflation-adjusted median household income has only recently started to rise (see Page 5 of this Census report (pdf))after falling for five straight years.
So as is often the case with economics, there's plenty of data to support whatever prediction you care to make. The economy is clearly slowing down; the question is how quickly it is doing so and how far it will go. And of course, there's the far-more-fun secondary game of "who's fault is it?"
I don't play that game too much. The economy tends to do what it will with only limited influence by the administration. But it seems safe to say that Bush's economic policy has not been an unqualified success: in exchange for massive tax cuts and soaring deficits, we've endured a recession, an anemic recovery and now a slowdown, with wages lagging far behind productivity and corporate profits. Perhaps we cannot blame Bush for those mediocre results, but we can certainly blame him for the huge deficits incurred to no particularly good effect.
Meanwhile, wait for the July economic numbers and hope for good news.
Update: Changed the post title to better reflect the content.
economy, politics, midtopia