The Recession Has Begun

Fourth quarter GDP was releasd this morning and it grew at an annualized rate of only 0.6%.  During the same time frame, inflation ran at an annualized rate of 2.6%. 

By the classic definition of a recession, which is two consecutive quarters of declining GDP, we’re not there yet.  But by my more meaningful definition – one that gauges the impact on average Americans, we’re already in a significant recession.  By my definition, a recession occurs when GDP doesn’t grow enough to keep pace with inflation and population growth.  Since inflation is running at 2.6% and population growth is about 1% per year – a total of 3.6% – then GDP needs to grow by 3.6% for Americans to keep pace.  With GDP growth of only 0.6%, Americans have fallen behind by 3.0%.  That is, the average American is now 3% worse off than he/she was just a few months ago.  That’s pretty significant! 

In fact, it’s even worse than that.  For all of 2007, GDP grew only 2.2%, 1.4% below the rate needed to keep pace with inflation and population growth.  So, by my definition, Americans have been in a recession for at least a year.   That’s not surprising since median wages and net worth have been in decline for over three decades. 

Stay tuned.  This is likely to get worse. 

Pete

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