With Recoveries Like This, Who Needs Recessions?

June 1, 2015 at 8:58 am 1 comment

Believe it or not we are in the sixth year of an economic recovery.  With recoveries like this who needs a recession?

On Friday the Commerce Department issued revised figures for the first quarter of this year and  the  quarter was even worse than we thought it was,  which is quite the trick since everyone new  that, aided and abetted by a miserable winter that kept consumers indoors, the first quarter was  pretty bad. Now we know the economy actually shrank   with    Real GDP decreasing 0.7 percent in the first quarter of 2015, in contrast to an increase of 2.2 percent in the fourth quarter of 2014.  According to the WSJ this is the third quarterly contraction since the recession ended in 2009. (http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm)

What led to the decline? We  imported more and decreased the rate at which we are buying things.  Real personal consumption expenditures increased 1.8 percent in the first quarter, compared with an increase of 4.4 percent in the fourth.  Durable goods  purchases increased 1.1 percent, compared with an increase of 6.2 percent.  Nondurable goods increased 0.1 percent, compared with an increase of 4.1 percent. Services increased 2.5 percent, compared with an increase of 4.3 percent.

On the bright side, the continued sluggishness of the economy continues to make those economists who see signs of inflation look clinically paranoid . The price index for gross domestic purchases, which measures prices paid by U.S. residents, decreased 1.6 percent in the first quarter, a downward revision of 0.1 percentage point from the advance estimate; this index decreased 0.1 percent in the fourth quarter.  Excluding food and energy prices, the price index for gross domestic purchases increased 0.2 percent, compared with an increase of 0.7 percent in the fourth quarter.

No one likes to admit when they are wrong but at some point economists have to step away from their models,  take a look around and realize that their habitual predictions of robust economic growth being right around the corner are wrong ; after all, their predictions have real world consequences for people trying to make a living.

The type of quote that really gets me fired up is this one also in the WSJ:

“Today’s GDP report will give the Federal Open Market Committee confidence that the soft-patch in [the first quarter] was likely driven by temporary disruptions as recent data has been more positive and the weaker bits can be attributed to weather, port disruptions, low oil price, a stronger dollar and residual seasonality.” –Bricklin Dwyer, senior economist at BNP Paribas.  Not to be outdone, there are those within the  Fed  who  view this latest Winter slowdown as a mere  speed bump on the road to greater growth.

These guys are like weathermen predicting a sunny day even as its pouring outside their office. “Don’t worry”  the economists keep saying. Their refrain is growing stale.    As  Tom Slefinger, Senior Vice President of BalanceSheets Solutions  wrote in last week’s “Relative Value Report”:

“ the pattern repeats itself time and time again. Step 1: Start with a very optimistic forecast. Step 2: Revise your forecast lower to reality. Step 3: Repeat the same pattern the following year.  So, in looking back over the past six years, the reality is the Federal Reserve and Wall Street have persistently failed to accurately predict future economic growth with an overly optimistic outlook proving to be consistently wrong”

Entry filed under: Economy. Tags: .

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1 Comment Add your own

  • 1. Lynn Gray  |  June 1, 2015 at 10:56 am

    It saddens me that the economists who have the correct bleaker outlook of the economy/recovery are looked upon with disdain, and those who consistently have their rose-tinted spectacles on are regarded as the experts. Once again Henry and Tom thank you for your correct economic outlooks.


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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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