The arithmetic of bouncing off the bottom

by drm on July 24, 2009

Princeton professor Alan Blinder made a very clear, cogent argument in the Wall Street Journal today that the second of 2009 could outstrip expectations, a by-product of the economy bottoming out in the second quarter.

The catch: While GDP is likely to grow, the consumer experience is going to lag. Production is down, demand is down, and even with a slight increase, unemployment will continue to rise for a while.

The prognosis is good in the long term, but distressing in the short term.

I think it’s the realization that the recovery is going to be slow and painful that is dampening consumer sentiment.

Some excerpts and the link are below. I recommend it highly.
clipped from finance.yahoo.com
First, the good news. Right now, it looks like second-quarter GDP growth will come in only slightly negative, and third-quarter growth will finally turn positive. Compared to the catastrophic decline we recently experienced — with GDP dropping at roughly a 6% annual rate in the fourth quarter of last year and the first quarter of this year — that would be a gigantic improvement.
Housing, which is down to 2.6% of GDP, will serve as an example. In the first quarter, spending on new homes declined at a stunning 39% annual rate. If that minus 39% number turned into a zero in a single quarter, that change alone would add a full percentage point to that quarter’s GDP growth (because 2.6% of 39% is about 1%). If the move to zero were to happen over two quarters, it would add about a half point to each. Many people think housing may in fact bottom out in the third or fourth quarter. Autos may already have passed their low point. And business investment will follow suit.
Related Posts with Thumbnails
Share

Tagged as: , , , , , , ,