Wednesday, June 25, 2014

Last Call For Downward Revision Collisions

The beginning of the year was not just bad for the United States economy: It was, on paper at least, the worst quarter since the last recession ended five years ago. 
The Commerce Department revised its estimates of first-quarter gross domestic product Wednesday to show that the economy contracted at a 2.9 percent annual rate. A combination of shrinking business inventories, terrible winter weather and a surprise contraction in health care spending drove the first-quarter decline, which is the worst since the first quarter of 2009, when the economy shrank at a 5.4 percent rate. 

So what about the very real possibility that we're back in a recession thanks to these factors, and oh yeah, Republicans blocking any and every possible plan to help the economy along for the last five years?

What makes the sharply negative number all the more stunning is that it didn’t feel like an economic contraction at all in the first quarter. Employers kept adding jobs. Many measures of business activity and consumer confidence were stable. And forecasters are expecting a healthy pop of growth in the second quarter, which ends next week. 
But the economy was hit by an unlikely combination of negative forces that conspired to turn what seemed set to be another quarter of so-so growth into a considerably more gloomy experience.

Ironically the reduced spending in health care by the Affordable Care Act contributed to these numbers.  A 1% GDP increase in the healthcare sector turned into a 0.16% contraction instead, a huge chunk of the latest downward adjustment.

But there are reasons not to freak out, thankfully.

Economists described the number as "horrid" and "dreadful," but then shrugged it off. So did investors. In fact, stocks rose.

"Despite the awful start to the year, the U.S. economy is nowhere close to recession," said Sal Guatieri, senior economist for BMO Capital Markets.

Something to keep in mind.  It looks bad on paper, but it's not the end of the world, or the beginning of another recession.


RepubAnon said...

Radical Christians believe that their interpretation of Biblical law (such as laws against abortion and gays) are required by God and must be imposed worldwide... does this mean Mr. Hice thinks Christianity is not a religion?

Horace Boothroyd III said...

Stay calm and show me the data: a career spent fixing explodey submarines and radioactive aircraft carriers taught me that freaking out is always the lowest item on the priority list, because no matter how bad things are they can always get worse if you lose focus.

While I personally would prefer more Warrens and Yellens at the upper levels of our financial oversight apparatus, Obama does have a good team in place and I trust them to handle the situation.

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