U.S. Economy — Still Growing After All These Fears

Kurt Brouwer May 29th, 2008

U.S. Economy: First Quarter Growth Estimate Raised (Bloomberg, Shobhana Chandra, May 29, 2008)

The U.S. economy grew more than previously estimated in the first quarter as Americans shunned imports and exports climbed to a record.

The 0.9 percent gain at an annual pace in gross domestic product compares with an advance estimate of 0.6 percent, the Commerce Department said today in Washington. Fourth-quarter growth was 0.6 percent. Separate figures today showed the number of Americans continuing to receive jobless benefits rose to a four-year high this month.

“It’s basically like an airplane at stall speed, just skimming above the water,” Jeffrey Frankel, an economist at Harvard University who is a member of the panel that dates U.S. economic cycles, said in a Bloomberg Radio interview. “I wouldn’t rule out going into a recession” later in the year.

Trade remains the bright spot for an economy that is likely to slow this quarter as surging fuel and food bills and falling home values force consumers to cut back. The economy will expand just 0.1 percent this quarter as spending slows further, according to economists surveyed by Bloomberg this month.

“We are somewhere in the twilight zone between an expansion and a recession,” said Michael Feroli, an economist at JPMorgan Chase & Co. in New York. “We will have a poor pace of growth through the year.”…

I had to laugh as I read the tortured analogy from Harvard economist Jeffrey Frankel. The ‘twilight zone’ remark from Mr. Feroli was pretty funny too.

We all try to say and write pithy comments. Sometimes we succeed and sometimes we fail. But, the lively metaphor should never distort the truth. Unfortunately, Professor Frankel’s remark does just that. The U.S. economy is not like a plane over water about to crash. If we do enter a recession, it is part of the normal economic cycle of ups and downs. We have recessions periodically and the economy recovers and moves on. A plane running into some air turbulence is a normal part of air travel. Or, a plane having a bumpy landing is normal. But, a plane crashing into water is not normal, nor does it recover and move on — it’s gone.

Now, I could write that remark off to a bad ‘hair’ day or whatever. I read Jeff Frankel’s blog periodically and he is a competent economist and, no doubt, a good guy. But, for some reason he is committed to a very negative view of the economy and this seems to be a problem for him because events are not working out as he thought they would.

Now, he claims he wouldn’t rule out a recession, but as recently as a couple of weeks ago he harshly criticized Ed Lazear, Chairman of the Council of Economic Advisers, for being in denial that we are in a recession [emphasis added]:

White House Confidence that US is Not in Recession is Misplaced (Jeff Frankel’s Weblog, May 12, 2008, Jeff Frankel)

White House CEA Chairman Ed Lazear expressed confidence to the Wall Street Journal today that the country is not in recession. I, like Menzie Chinn, am surprised that Lazear is willing to put his reputation on the line in this way.

It is true that the Commerce Department BEA’s advanced estimate of first-quarter GDP growth was still above zero (+0.6%). But there are three reasons not to take this number too seriously…

As recently as May 12th, the good professor thought that anyone who did not see the recession was in denial. Now, we find out that he thinks we may not be in a recession. Does that mean he is now in denial? Or, is he just confused about this economy (see The Peekaboo Recession — Is It or Isn’t It?) like the rest of us.

Bashing anyone associated with the White House is a popular pastime these days. However, today’s report that GDP growth has been revised upward suggests that CEA Chairman Ed Lazear was correct. If so, that’s good news for all of us.

Update: From the Bureau of Economic Analysis:

carpe-diem-bea-small-gdp1.bmp

Via: Carpe Diem

Pictures often tell the story when words don’t. The gray section at the left side of the bar shows a mild recession. So far, 2008 shows positive — albeit modest — growth. A recession may yet happen, but it is not here yet.

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One Response to “U.S. Economy — Still Growing After All These Fears”

  1. [...] have interpreted this upward revision as a sign that we are safe from recession (Seeker Blog. Fundmastery Blog, NewsBusters, Samurai Trader, and Business Law Prof Blog). I particularly like this line from Carpe [...]

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