Economy growing ... but just barely
GDP rose at a 0.6 percent pace in the first quarter, the US government reports.
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Some economists believe that this year will see such a decline. But they also add that, even without negative growth, a recession may exist based on other criteria such as jobs and income.Skip to next paragraph
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Recessions are officially declared by a committee of economists at the National Bureau of Economic Research, a private organization in Cambridge, Mass. The decision is generally announced after the fact, based on analysis of data on economic output, incomes, and job creation.
Job growth has been negative for several months. Wages, adjusted for inflation, have also been declining on a year-over-year basis. Broader measures of income appear to be stagnating. And GDP, while still positive, has been barely growing in the past couple of quarters.
"Whether it's formal [recession] or not may not be that important," Mr. Kretzmer says. "Our forecast leans toward a somewhat lengthy episode [of weakness], shallow but prolonged."
The good news is the "shallow." Unless severe shocks or policy mistakes cause large-scale unemployment, the economy generally plows along. Unemployment stands at 5.1 percent, pending a new report from the Labor Department on Friday.
"In our $14.2 trillion economy, it's very hard for us to see huge swings one way or the other," Vitner says. Consumer spending accounts for two-thirds of GDP, and "most of consumer spending is effectively on autopilot."
The bad news is the "prolonged." It will be hard for consumers or businesses to accelerate their spending much while they are being buffeted by forces such as the housing downturn and a surge in the prices of commodities such as oil, many economists say.
"We've become somewhat more negative on any quick recovery" in the housing market, Kretzmer says. "That makes it difficult for the economy to recover."
Some analysts say that Wednesday's preliminary tally of first-quarter economic activity was weaker than the overall GDP number suggests. Consumer spending rose, but at a tepid 1 percent pace, and spending on durable goods fell at a 6 percent annual rate, notes Michael Darda, chief economist at MKM Partners in Greenwich, Conn. He says the economy may enter a recession, based on payroll and income data, even if it does not see two quarters of negative growth.
At the same time, he is more optimistic than some forecasters about the strength of a recovery. He points to marketplace signals such as a stock market that has stabilized and risen a bit in recent weeks.
"These indicators suggest more robust growth later in 2008 or in early 2009," Mr. Darda wrote in a report Wednesday.