Are We Heading Towards Recession?

The big economic news from yesterday was certainly the downwards revision of first quarter 2014 GDP by the Bureau of Economic Analysis:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — decreased at an annual rate of 2.9 percent in the first quarter of 2014 according to the “third” estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2013, real GDP increased 2.6 percent.

The GDP estimate released today is based on more complete source data than were available for the “second” estimate issued last month. In the second estimate, real GDP was estimated to have decreased 1.0 percent. With the third estimate for the first quarter, the increase in personal consumption expenditures (PCE) was smaller than previously estimated, and the decline in exports was larger than previously estimated (for more information, see “Revisions” on page 3).

At this point I think that it would be premature to forecast that the recovery, such as it has been, has ended and we are now settling into a recession. Rather than continue decline in economic activity I think things are largely pretty flat.

That’s very much consistent with the reports from the National Retail Federation which tends to have its ear pretty close to the ground. April retail sales were flat as were May retail sales. Their take is that consumers are tightening their belts which may, indeed, signal more contraction to come, possibly in the third quarter. I may try to look at manufacturing and exports to see if I can get any advance indications there.

Washington tends to be reactive rather than proactive so I guess it’s not surprising that nobody, from the White House to the Congress, is actually proposing anything that might increase economic activity. Neither is it surprising that supporters of the White House are continuing to blame the first quarter’s decline in economic activity on bad weather. That explanation will ring increasingly hollow with flat growth in the second quarter or declines to come.

10 comments… add one
  • ....

    We’re probably just bouncing along with the shitty economy we’ve had for years. But the PCE numbers were interesting, as have been the retail numbers from April and May.

    In any event it is clear that something more significant happened in Q1 than an unexpected outbreak of winter in the middle of winter, or a draw down in inventories.

    Washington tends to be reactive rather than proactive so I guess it’s not surprising that nobody, from the White House to the Congress, is actually proposing anything that might increase economic activity.

    Their supporters, the ones that matter, aren’t really hurting, so there’s no need for action yet. If the stock market drops 40% but we get a return to full employment and higher median wages, I can guarantee you that Congress and the President would act post haste to put people out of work and suppress wages again in order to make certain the Buffets and Soroses of the world do well. Those are the only kind of constituents that matter.

  • ....

    The good news is that CNN is covering this story with all due concern. Which is to say it’s well below coverage of celebrity breakups and a story on how to skip work to watch soccer.

  • Ben Wolf

    Tipping back into recession will continue the “yo-yo” effect of relying solely on weak automatic stabilizers to manage the macroeconomy. Revenue will fall, increasing the deficit and slowly reversing the downward trend at which point revenues will begin rising along with anemic growth. Another cycle brought to you by governmental neglect.

  • michael reynolds

    Really? Not a word about the fact that health care expenditures were lower than earlier anticipated even as Obamacare finally begins to take effect?

  • Hard to say to what degree that’s a cause and to what degree an effect. It’s still too early to proclaim causality between the PPACA and healthcare spending decreases. The causality might go the other way.

  • ...

    If your premiums go up so you decide to cut back on other health care spending, your HC spend can go down. That isn’t necessarily a good thing.

    And while it is too soon to know exactly what happened, we haven’t heard stories of millions ecstatic because their premiums went down.

    Not to mention that if millions more people are paying for HC, one would expect HC spending to rise in aggregate.

    But please continue to explain how a shrinking economy is a good thing. It will go nicely with your claims that lower levels of employment and falling median income are irrelevant because the Dow Jones Industrial Average is at record highs.

  • Here’s one man’s explanation:

    Why did this happen? It could be that people were hording medicines and avoiding going to the doctor during the cold weather. Or it could be that many newly insured people delayed going to see the doctor, buying medicine, or having procedures done in January, February ,or March until their health-care premiums were fully processed by the state and federal exchanges in April. (Remember, April 1 was the deadline for signups under the Affordable Care Act). It could be that doctors are rationing health care—refusing to schedule appointments. Or it could be that many people are actually paying less for health care because they have insurance—i.e., seeing doctors with a $25 co-pay instead of going to the emergency room.

    I’m not as predisposed as the writer is to conclude causality of any kind yet.

  • ...

    Plus, if people were saving lots of money on HC, one would expect that spending to go elsewhere. Where’d it go? Was other consumer spending up? Are consumer debt levels falling?

  • Which leads credence to the “people just aren’t spending” explanation.

  • ...

    If people aren’t spending, shouldn’t we see this somewhere? Are bank deposits up? Or is everyone just stuffing their mattresses and digging holes in the backyard? Or, more likely, are consumers just taking on less debt?

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