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So, Where's the Recession?
To paraphrase Mark Twain, the reports of a recession are premature. Yes, it begins to look once again like the "gloom and doomers" are wrong. While the jury is admittedly still out, things are looking pretty good for the American economy as we look to the second half of the year.
To the surprise of most, the Gross Domestic Product, the total output of goods and services in our country, was reported last week to be up 2% for the first quarter, exceeding almost everyone’s guess on the first quarter, and exceeding fourth-quarter growth, which was only 1%. Admittedly, the Gross Domestic Product figures will be revised twice more before they’re finalized, but in all probability, there will be no minus sign for the first quarter. That is important, because by definition that means that if we were to fall into a recession, the second and third quarters of the year would have to be in negative territory for it to officially qualify as a recession. Very few of the so-called experts think the weakness prevalent in the fourth quarter of last year and the first quarter of this year, will extend too far into the second half of the year.
As stated a number of times in this space, there are a lot of positive things at work in our economy. Remember the old saying, "DON’T FIGHT THE FED." It is now the doom and gloomers who are fighting the Fed, but in the meantime the Fed has cut interest rates four times in the past four months, and will probably cut again in the middle of this month. The Fed has said repeatedly that it will do anything necessary to prevent our economy from falling into a recession, and unlike a president or a Congress, the Fed is almost the only institution in Washington that can really back its words with actions.
The Fed’s actions have helped the real estate market remain relatively positive as well as the auto industry. With those two key industries staying above water, it is almost impossible for the economy to go into a recession. And, with those two industries positive, consumer confidence is also likely to stay on the plus side. After all, it is we the consumer that is the driving force of the economy, remembering please that consumer spending, that’s you and me, and Main Street, account for two-thirds of the Gross Domestic Product in the first place.
Looking ahead to perhaps next month, in all likelihood we’ll get a tax cut. Since the tax cut is, at least in part, retroactive to January first of this year, it will have more immediate effect on us and our economy than most tax cuts. Still, the lion’s share of the cut is spread out over the next ten years, and that’s okay because it encourages savers, investors and entrepreneurs and over a longer period of time that’s what our economy needs.
So, it seems as if we’ve passed though the worst of our economic slowdown, and it seems that’s all it was, a slowdown, not a recession. It may have seemed like a recession because we were coming from a 6% or 7% rate of growth down to a 1% or 2% rate of growth, which is a big drop, admittedly, but still, as long as it reads "plus" it is not a recession.
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A bit more on the economy and its future outlook. Federal Reserve Board Chairman Alan Greenspan recently warned that productivity growth may be a bit weak for a period of time because of the current economic slowdown. He hastened to add, however, "There is little in the recent data to suggest the need for significant alterations to the long-term productivity forecast of various U.S. government agencies." Both the Congressional Budget Office and the U.S. Office of Management and Budget have assumed the acceleration in productivity growth will persist. The Fed chief has maintained all along that the pickup in productivity growth in recent years is a longer-term development rather than merely a transitory event that may slip away. That, of course, is also good news, because productivity, or output-per-worker-hour has been the single most important key to our continued economic strength. All in all, the good old U.S. of A. looks to be back on track again, and for those of you that need a further tune up, I call your attention to our mid-March column concerning my long-term optimism about the economy.
(Tom Butenhoff is a First Vice President with J. E. Liss and Company, Inc.
in Milwaukee. The views are his, and not necessarily those of Liss
Financial Services or the Job Connection/Hiring
Network.)