Is the U.S. economy on the verge of sinking back into recession?

The Bureau of Economic Analysis (BEA) released its preliminary estimate of Gross Domestic Product (GDP) this morning.  The news isn’t good.  Real (adjusted for inflation) GDP, the broadest measure of how the economy is doing, fell from an annual growth rate of 3.1% in the fourth quarter of last year to only 1.8% in the first quarter of 2011.  (Here’s a link to the report.)  Actually, inexplicably (perhaps hoping that no one would notice, since the news is bad enough), the BEA committed a rounding error in its report.  If you do the math, the growth rate was actually 1.748% and thus should have been reported as 1.7%. 

But, if you’ve been following this blog, you know that the news is worse than that because of population growth.  What matters is not the size of the pie, but the size of the slice that everyone gets when more and more people show up at the table.  The U.S. population is growing at a rate of about 1% per year.  Therefore, the growth rate in real per capita GDP was only 0.7% in the first quarter.

But wait, the news is even worse.  Although the government stimulus program has fallen off everyone’s radar since it’s nearly over, it’s not over yet.  Stimulus spending added $43.2 billion to the economy in the first quarter.  Take away that spending (because it will soon dry up), and real per capita GDP growth falls to only 0.3%.  That’s perilously close to the resumption of the recession, the 2nd “dip” of the “double dip” I’ve been predicting. 

And, if you’ve been watching the economic data releases in April, you know that the economy has slowed noticeably from the 1st quarter.  Unemployment claims are rising again.  The housing market is slumping further.  And gas prices present a major challenge to consumer spending. 

And the trade deficit gets a lot of the blame for the slump in GDP.  Here’s a quote from the BEA’s summary:

The deceleration in real GDP in the first quarter primarily reflected a sharp upturn in imports, a deceleration in PCE, a larger decrease in federal government spending, and decelerations in nonresidential fixed investment and in exports that were partly offset by a sharp upturn in private inventory investment.

“A sharp upturn in imports” and “decelerations in … exports.”  In spite of trillions of being pumped into the economy in the past couple of years by the federal government and by the Federal Reserve, this economy is hanging by its fingernails.  Our idiotic trade policy, which the president promised to address during his campaign but so far hasn’t, gets much of the blame.  There’s simply no hope for this economy until something is done to restore a balance of trade and bring our manufacturing jobs back home.

One Response to Is the U.S. economy on the verge of sinking back into recession?

  1. ClydeB says:

    Any one who shops the grocery stores has seen a precipitous rise in food prices right along with gasoline.
    Those few companies still engaged in manufacturing in this country continue finding ways to improve productivity thus delaying any hiring even in those few instances where demand has increased.
    The individuals, who survived the crash and have stocks that didn’t tank, are realizing significant gains in stock prices, although it would appear to be a factor of the falling value of the dollar rather than a true gain in value of the company.
    The corporate value calculated for Google (more than everything else combined) when it has yet to make a profit is a sign of the insanity surrounding this economy.
    No doubt, we are in for some rocky times ahead.

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