Three times rotten? A recovery hasn’t seen this many dips since the 1950s

Discussion in 'Stock Market Forum' started by admin, May 31, 2015.

  1. admin

    admin Administrator Staff Member

    Feb 2014
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    The U.S. economy has fallen into negative territory three times since the current recovery began in mid-2009, a dubious feat that last occurred more than a half a century ago.
    What’s to blame for the most up-and-down recovery since the mid-1950s?

    Serious flaws in how gross domestic product is calculated is one prime suspect. The government’s GDP report appears to have underestimated growth in the first quarter for decades, a problem that has become even more acute. At the same time GDP probably has overstated growth in the second and third quarters, so the underlying U.S. growth rate is probably the same.

    “The evidence of a seasonal quirk in the first-quarter GDP growth figures is pretty overwhelming,” said Paul Ashworth, chief U.S. economist at Capital Economics.

    The second culprit — and evident ring leader — is the U.S. economy itself.

    Bad policy, back luck or whatever you call it, the economy is no longer growing as fast as it used to. So any time there’s a temporary dip in economic activity because of poor weather, spiking oil prices or some other major event, it’s no surprise that GDP might show a contraction.

    The U.S. has grown at a mediocre 2.2% annual pace since the first full year of recovery in 2010. That’s just two-thirds as fast as the economy has grown since the government began keeping track in early 1930s.

    The less the economy grows, the easier it is for quarterly GDP to slip into the red from time to time, especially if some sort of “shock” occurs. The first-quarter suffered from several of them: unusually harsh weather, a dockworker’s strike, a soaring dollar that undercut U.S. exports and a drop in business investment tied to plunging oil prices.

    Of course, such shocks are nothing new, and the economy in the past has shown more resistance to them. The U.S. did not experience a single negative quarter, for example, during the last three major economic expansions: the early 2000s, the 1990s and the 1980s.

    You have to go a lot further back to the weak 1973-75 expansion to find another episode of a quarterly contraction in a recovery phase.

    Another one occurred in the short-lived 1958-1960 recovery.

    The last U.S. recovery to include three negative quarters like the current one was from 1954 to 1957. Yet there is one big difference compared to today: the economy back then expanded by leaps and bounds.

    The U.S. grew at a 3.8% rate during the “Eisenhower recovery” following the end of the Korean War. And the fastest quarter of growth nearly reached 12% — more than twice as strong as the best quarter in the latest recovery.
  2. JR Ewing

    JR Ewing Super Moderator Staff Member

    Feb 2014
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    This has certainly been a very tepid recovery. What little improvement we've seen has largely been due to the Fed's actions. We'd have a much better recovery without so many new regulations and taxes / tax hikes put in place (Obamacare, etc). The fact that there's virtually no inflation and that the Fed has felt it necessary to keep rates at zero for nearly 7 years is troubling.
  3. Fredrick Jones

    Fredrick Jones Well-Known Member

    Jan 2015
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    The GDP per capita for USA has remained stagnant for the last 10 years. Also as you said there is a problem on how GDP is calculated. Over simplified example.

    China manufactures an ****** for apple at a cost of $120. This includes the labor put into the ******, the cost of the materials etc. China then sells the ****** to Apple in USA for $140. China's GDP per that ****** will increase by $20. Meanwhile Apple which is nothing more then a designer and retailer sell the ****** in USA for $130. USA's GDP will increase by $130.

    But how many jobs did that ****** create in China ? How many did selling the ****** in USA create ?

    The GDP per capita is probably a lot lower then reported. It does not count the 40+ million illegal immigrants in USA. Also the massive amount of legal immigration is causing GDP per Capita to drop.
  4. petesede

    petesede Guest

    Dec 2014
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    The world is changing.. and probably the biggest difference is how quickly and how integrated we are with other countries economies. Yes, things are different now... 20 years ago you couldn´t trade currencies 50 times in 3 minutes. 20 years ago you didn´t have access to information about the economies of other countries updated every hour. We were getting our information on other countries economies once a month in a magazine article that was based on information that was 3 months old.

    The net result is that we are more volatile over short terms, but more stable over the longer term. You aren´t going to have a depression like the 20´s, nor a crash like 1987 ( as a percentage point comparison).

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