The Oil Drum | Economy grows at slowest pace in 3 years

124 comments on Economy grows at slowest pace in 3 years

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Agric on January 28, 2006 - 2:36am

Probably like you, when I first saw GDP +1.1% pop up on my screen I said: What? Error?

Remember, I'm the chap who said +2% H1 2006, flat H2 2006, recession thereafter, a month back.

Looking closer at the data there were some special factors in both directions but mainly skewing it down. It may well be revised up to +2% approx in a month's time, we will see.

The most important thing I took from the data was consumer slowdown - the evidence for that riddled the data, and I don't think that is likely to recover much soon, I'm feeling comfortable with my overall 1% official GDP growth over 2006. I would be feeling very uncomfortable with the mainstream 3.5% 2006 estimate.

It is interesting comparing these comments immediately prior to the release:
http://www.marketwatch.com/news/story.asp?guid=%7BFDE7B999%2D1142%2D43B0%2D824C%2DD560F56E50E2%7D&am p;siteid=mktw&distwith those after it: http://www.marketwatch.com/news/story.asp?guid=%7B5869FC75%2D4B54%2D4C08%2D900A%2D5DF170530E18%7D&am p;siteid=mktw&dist
http://www.marketwatch.com/news/story.asp?guid=%7B465AC54A%2DED6D%2D486B%2DBDF2%2D06C065C9B1BD%7D&am p;siteid=mktw&dist=

Now, I am a sceptic on certain US economic stats, and GDP is an important one of those. My personal take is that GDP is overstated by between 1.5% and 2.5% compared with how it was reported in US 10+ years ago and how it's reported in Europe. Some others I respect think it is overstated by 3 to 4%!

By those measures the US could be entering recession now. I don't think that is true, even though it is what I predicted a year ago. I expect Q4 2005 GDP to be revised up to a little over 2% and Q1 2006 to come in (after revisions) at about 2.7%. Recession will be with the US economy within a year but I don't think it is here yet.

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Mad Maxout on January 28, 2006 - 1:26pm

Why am I sooooo UNsurprised by a lacklustre economy? Afrter all, people are giving their money to Bush's friends just to stay warm and get to work. Also, the economy goes bad any time a GOP regime is in power, like since 1/20/2001 with or without an oil peak. The nearing oil peak only worsens matters or gives the Bush v.2.0 regime an excuse.

With or without cooking the books, a GOP regime always means the economy sucks for those who are not gazillionaires. It sucked under Reagan just as well as now. The oil peak only helps Republicans impoverish the middle class, which is their goal. Why anyone votes for these arseholes puzzles me to no end - and the Dems aren't much better. Why Bush won't talk about the oil peak is simply becuse he can't ever tell the truth about anything. I guess democracy itself wan't Y2K-compliant.

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fallout on January 30, 2006 - 1:40pm

Or the early 1980's.
Or the early 1990's.
Yep, GOP presidents always reign over craptacular economic situations.

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Freddy Hutter on January 28, 2006 - 1:56pm

The report of the CBO analysing the effects of the hurricanes on GDP and unemployment that i posted on Oct 25th did forecast a 2005H2 slump and a rebound in 2006H1.

http://www.cbo.gov/ftpdocs/66xx/doc6669/09-29-EffectsOfHurricanes.pdf

1.2% of the forecast growth was cutback due to the extreme trade deficit. A trade deficit that defines "too healthy" an economy as americans continue to buy cheaper foreign goods (and oil & gasoline). Only a downward correction in the dollar will help that situation.

No credible economists are suggesting that this gdp report is a precursor to Recession. Only the many defeatists at TOD are gloating today. Many here must mature and learn that stats go up and down on a weekly, monthly, qtr'ly and even annual basis and it is important to watch the trendline ... not be consumed in absolute numbers. Otherwise confusion reigns.

Unemployment will continue to drop thru 2006. GDP, which until Q4 had a string of 10 qtr's at 3% or above, will resume its path in Q1 as the GOM rebuild of inftastructure, homes and contents continues.

Plan for a Recession at your own peril...

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Leanan on January 28, 2006 - 4:08pm

But even discounting oil prices, aren't we about due for a recession? The expansion has been going on for what, four years now? Wouldn't we be expecting a downturn about now?

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Oil CEO on January 28, 2006 - 4:39pm

We would have to analyze the occurence of recessions. 1990-1. 2000-2001. Currently you couldn't really say we were "due" for one until 2010. This is an economic subject of its own.

Personally, I have been expecting one for two years based purely on the price of oil. The fact that we haven't had one would lead one to re-appraise our analytical tools.

"What is different this time?"

We are in new territory.

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Leanan on January 28, 2006 - 5:01pm

The Clinton boom was an oddity. Ordinarily, expansions don't last anywhere near that long. That's probably why so many people thought it really was a "new economy." Typically, cycles are much shorter than that.

As for why the economy has held up so well...I've heard two theories, both of which seem reasonable. One is that the rise in price was gradual, not sudden like it was the last time we were in this territory. So the economy had time to adjust.

The other is that there's a difference between a supply shock and a demand shock. According to this theory, what causes recessions are supply shocks - when suddenly, there's less oil than the economy is accustomed to. What we've had until recently has been a demand shock - the world economy growing so fast that supply can't keep up with demand. Since this is a result of healthy growth, it doesn't cause recession.

According to the latter theory, Katrina could be trouble, because that actually reduced supply.

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Oil CEO on January 28, 2006 - 5:07pm

Roger that. Good points.

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wkwillis on January 30, 2006 - 7:20am

I've noticed that the Fed has for the last twenty five years cut interest rates when a Republican president is going for reelection and afterwards, and raised them just before a Democrat is going for reelection and afterwards.
Despite this, or perhaps because of this, the economy does better under Democrats.
Is the Fed trying to get Republicans in the White House and it is actually aiding Democrats as a policy? Because it doesn't know what it's doing, or because it does?

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Stuart Staniford on January 28, 2006 - 6:40pm

We'll check back with you next quarter Freddy :-)

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Agric on January 28, 2006 - 8:27pm

Ah, Freddy, your rose tinted spectacles are a wondrous item. I would wish to perceive the world as you do, please give me the contact details for your optician, he is truly magical.

I do agree with some of your sentiment: the Q4 2005 advance stats will probably be revised up to about +2%, there are special factors. But the US economy will be in recession, even on the current optimistic measure, within a year.

Unemployment may drop but so will employment, now there's a conundrum. How do you expect house prices and consumer spend to change?

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124 comments on Economy grows at slowest pace in 3 years

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