Economy growing ... but just barely

GDP rose at a 0.6 percent pace in the first quarter, the US government reports.

By Mark Trumbull | Staff writer of The Christian Science Monitor

from the May 1, 2008 edition

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America avoided a period of outright decline in national output as 2008 began, revealing an economy that is not so much buckling as slowly sagging.

For practical purposes, positive growth numbers released Wednesday are just a technicality. It feels like a recession to American workers, consumers, and businesses. A period of significant weakness could persist for months to come, perhaps well into 2009.

What's equally notable, however, is that this downturn is unfurling slowly and in a muted fashion, despite the shocks of soaring energy and food costs and a plunge in real estate wealth.

Some economists even raise the possibility of something unprecedented in records since World War II: that economic officials will declare a recession even as gross domestic product continues to rise.

In the first three months of the year, US economic output rose at a 0.6 percent annual pace, the Commerce Department reported Wednesday. Jobs, wages, and consumer spending are weakening, but only slowly.

In the current economic cycle, much of the direct impact of a consumer slowdown is being felt overseas, rather than in the domestic economy.

"In some sense the recession has been outsourced," as people postpone purchases of BMW cars and Korean flat-screen TVs while still paying for rent or child care, says Mark Vitner, an economist at Wachovia Corp., a banking firm in Charlotte, N.C. "If you look at the composition of these numbers ... it really begs the question of whether we're going to see a decline [of GDP] at all in 2008."

For a couple of years now, America's hunger for imported goods has been cooling – generally rising but at a decelerating pace. In some recent quarters, the pace of imports has actually fallen.

The way GDP is tallied, that actually helps boost economic output, because imports are a line item that subtracts from growth, while exports represent positive US production.

"The slowdown in imports is actually helping to produce stronger GDP," Mr. Vitner says. "But it's probably not producing an improved sense of well-being."

Foreign trade is supplying some positive momentum for GDP on the export side as well, as a weak dollar boosts foreign demand for US-made goods.

In addition, tax-rebate checks, which were mandated by Congress and President Bush to stimulate the economy, will soon begin to bolster consumers' bank accounts, economists note.

These may be modest positives, but for Vitner and some other economists, they raise the prospect that the economy could slide through the year without any quarters when GDP actually declines.

One rule-of-thumb definition of a recession is two quarters when growth turns negative. All recessions since at least the 1940s, for example, have seen some period of decline in the production of goods and services.

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