> The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.
...
> In the first quarter, slower growth in inventories shaved close to a percentage point off G.D.P. growth. Companies raced to build up inventories in late 2021 to make sure supply-chain disruptions didn’t leave them with bare shelves during the holiday season. That meant they didn’t have to do as much restocking as usual in the new year.
> The report is more an illustration of how GDP calculations tend to be volatile from quarter to quarter, not necessarily indicating weakness in the economy or a sign of recession. The contraction was due to a jump in imports and a drop in exports, coupled with a slower buildup of businesses’ stockpiles. On a year-over-year basis, the economy grew 3.6%.
...
> Together, trade and inventories subtracted about 4 percentage points from headline growth. Government spending shrank, also weighing on GDP. But real final sales to domestic purchasers, a measure of underlying demand that strips out the trade and inventories components, accelerated to a 2.6% annualized rate.
It's a fascinating economic "recovery" that's actually an economy shrinking.
The definition of a recession is two consecutive quarters of negative gdp growth, so it's funny to call the beginning of a recession a strong "recovery"
> The definition of a recession is two consecutive quarters of negative gdp growth
That’s not the definition of a recession:
> the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy. The NBER recession is a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth.
The analyses I've seen indicate that a single top-line figure like GDP belies a lot of underlying complexity and fails to tell the whole story.
Feel free to provide specific critiques of these analyses. I'm certainly interested to hear your perspective, as the data is complex and COVID has made the world more than a little bit weird.
But snark and scare quotes do little to enlighten.
GDP is a single number, and reducing the entire economy to a single number is always going to be inherently reductionist.
That said, there are a lot of different signs, indicators, and numbers that suggest that the present economy is not really amazingly wonderful despite how inconvenient that is for the current administration and its boosters like the Times.
Obviously, inflation being really quite high (and going only upward) isn't a great sign.
Low unemployment is a strong indicator, though the fact that the labor participation rate is still at 1970s levels (when the labor force was still much more significantly gendered) is not. Labor participation is increasing slightly, so it's still not all doom-and-gloom, but it's not great. Low unemployment also means that the US is unlikely to be able to get its economy back to growing simply by hiring more people to be productive -- since everybody willing to work already is.
GDP declining is, as discussed, a direct measurement of the decline in the size of the economy.
The widespread "everything shortages" that are plaguing basically all corners of the goods economy is another -- and the fact that a year later the situation is even worse is not promising.
Overall, it's a bit disingenuous to talk about the amazing and stellar economic recovery that's going on. It's much more of an economic teetering-on-the-edge-but-maybe-it-will-stay-on-the-okay-side.
> It's much more of an economic teetering-on-the-edge-but-maybe-it-will-stay-on-the-okay-side.
I couldn't agree more! To be clear, I posted those alternative takes not because I buy into them as a complete alternative narrative, but rather to, again, encourage people to synthesize multiple points of view in order to get a more balanced picture.
Your comment actually does a very nice job of summarizing those points of view, so thank you!
Supplier's prices have shot through the roof in the last quarter and people's buying power has decreased through inflation which seems like a recipe to slow down the economy but, I'm not an economist.
You are correct and doesn't take an economist to figure this out. VISA and Paypal's reduction was a major red flag. Contrary to permabulls, when goods get expensive, people actually just stop consuming those goods or reduce it. It's bad because companies have to lower prices but they can't because of supply chain issues. So we are beginning to see what many economist have predicted: simultaneous stagnation and inflationary prices.
I personally think that we might end up like Japan with a permanently low interest rate at the cost of stagnation and continued inflation that destroys the middle class and pushes people on the fringes further.
It's likely that the whole pandemic measures while legitimate in itself, also had a second ulterior beneficiaries, the ability to massively lockdown segments of the population and keep them inside. Looking at the Shanghai and now Beijing lockdown reminds of this yet the cases continue to rise which tells me the primary motive isn't to reduce covid over there. It will take far less to pull off the same thing in free societies, fear portrayed by mainstream media and experts is all that is necessary to keep everybody from participating in mass protests and violence.
It is said that if you do business with authoritarian countries, you start to resemble them and I fear that we are headed towards something like that from all we've seen in the past 3 years especially.
They will not do what Japan did. They will raise rates. And there will be people in the fringes no matter what they do. There is no way out of this trap, Then there will be an authoritarianism in the U.S., something like you have never seen before.
> It is said that if you do business with authoritarian countries, you start to resemble them and I fear that we are headed towards something like that from all we've seen in the past 3 years especially.
As they say, you can judge a person by the company they keep. This is probably true of any system. You can evaluate a system by that which it is entangled with.
This is super concerning. With inflation and a contraction in economy, this is looking like the potential for stagflation that we haven't seen since the '70s.
EDIT: Not here to fear monger since people are silently downvoting away. It's one quarter followed by a relatively strong quarter. But inflation issues have been present for a while and is growing worse. World wide conflict between Russia-Ukraine that affects everyone via energy. Concerns about a recession have been in the works for a while now as well. If you have confidence that my fears are unfounded, I'm happy to hear them.
Concerning but unavoidable. Interest rates must rise to subdue inflation, and an economic contraction is inevitable. Slow and steady deflates the bubble carefully.
Inflation is largely a political affair. It's a hidden tax that is designed to benefit those with large amounts of capital by devaluing capital that belongs to the lower classes. If you own properties, hard assets, you benefit from inflation and vice versa.
Unlikely until mid-elections. No political camp wants to be the one that stops the music and become the destroyer of wealth of the middle class. Yet the soft landing they keep touting is simply not possible with the amount of money printed.
The fed is at a tough place but if the US dollar loses the faith of other currencies backed by it, it could become a national security issue. Yet the decision maker's continued hold on power is dependent on them delaying it as such for the duration of their term.
Something has to give. $1 in 1992 is now $2 in 2022. It's very possible that it reaches $4 in half that time, possibly even as little as 5 years. This is a very real possibility that stakeholders are dealing with.
Hyperinflation is almost certainly followed by a major world conflict. ex) Weimarch Republic
> Hyperinflation is almost certainly followed by a major world conflict. ex) Weimarch Republic
Nah. The US is still too self-sufficient, even if the US collapses internally as a result of either inflation or political infighting (which is scarily possible, we've seen the first signs on Jan 6th 2021!) there won't be any need for the US to head to an offensive war for resources, space or revenge. The US produce more than enough food, oil and gas to serve the country's demands; the interesting thing will be anything involving computer chips but as long as Japan and South Korea don't get invaded there won't be a need for the US to intervene with its military.
The really interesting part will be China and Russia... but given that Russia gets their ass brutally beaten in Ukraine and most Chinese military designs have strong roots in Soviet and Russian technology, I seriously doubt that China will risk anything more than loud posturing.
In any case I think and hope that nuclear MAD doctrine should be enough to prevent a large scale world wide war.
Good post. You talk about MAD, but one interesting dynamic is that with conventional warfare, the US and its allies have un-paralleled capabilities but one check on that is that if they were to project this power onto a foreign territory like Russia/China there is a disadvantage in that the US would be unlikely to launch nuclear weapons on locale's where troops could be harmed by them thereby creating a dis-incentive to invade.
I'm not so sure that China is simply bluffing. The recent lockdowns in Shanghai is very peculiar. It does not appear to be aimed at reducing transmission, rather it looks like mobilization during war time. I'm inclined to think that its a sort of a civilian war exercise in case the mainland faces retaliatory strikes but for what?
Xi like Putin is on the edge of the cliff. When strongman fear an uprising, they create external conflicts to mobilize the crowd. For Putin, it was 3 decades of stealing from the Russian state and people with covid decimating it's economy. Similarly for Xi, it is the continued economic growth that legitimizes its power and with the deflation of its real estate industry, zero covid strategy touted by xi, that in turn created an economic fall out, it's do or die for Xi before the 20th party congress in a 4 months or so.
I fear that Taiwan will suddenly find itself in a situation like Ukraine except I do not think the US and its allies will allow China to gain unchecked access to the Pacific ocean by taking Taiwan and its semiconductor production that US military depends on.
I see the current Chinese lockdown as the ultimate "never ever lose face, no matter how high the cost" scenario. China decided very early on to solely allow their vaccines (which turned out to be pretty low quality) and to combine that with a rigorous containment policy.
The idea of a containment policy was pretty solid and effective (even though the measures taken were sometimes beyond all reasonability), the problem was that the low vaccine efficiency completely imploded that idea with the Omicron mutants.
And now, the Chinese government is in a pretty bad place politically... their choices are a) to admit that the vaccines are shit, allow internationally recognized vaccines and keep containment policy until these have been rolled out b) admit that the containment policy has failed and accept the spread of covid like most Western countries did or c) counteract the improved spreadability and immuno-escape capabilities of SARS-CoV-2 by harsher containment measures.
Neither of these three options are good, and I believe that the fear of Xi's regime to "lose face" will inevitably lead them to option c) as it is the only way that does not force the regime to admit that their decisions have been faulty - the central committee can simply declare lower ranks not following orders are the culprits and so Xi's face is saved.
There is also an addendum - as all three options lead to a severe hit in popularity and correspondingly a threat of the stability of the Chinese government, the regime may decide to invade Taiwan for political gains ("we led the secessionists back into the homeland"). The key question there is if the regime is willing to risk a Russian scale defeat, as unlike Russia China has practically zero experience in military conflict and Taiwan has a direct bilateral defense agreement with the US.
Got news for you. Interest rates as a lever on inflation is unproven. It may actually contribute to more inflation as the Federal Government is a net payer of Interest and as such interest income paid out to the private sector increases. This adds liquidity to the economy and could increase demand.
The political solution to sluggish economic growth: use federal powers to disrupt the regressive land use regime of California. These guys think it will add 3.7% per year to economic growth. Plus it will be filed under "owning the libs" by majority of center of the country.
Business and investor interests quickly point to the federal reserve as a scapegoat for policies which they needed to prevent bankruptcy in the worst period of the covid crash.
We've had a surreal 2 years where the US is clearly in decline yet the stock market and rampant speculative investing suggest a booming economy. It's been a bit of a fantasy for the property-holding class, while regular people still largely see unstable work schedules, omicron spreading, and crumbling roads/infrastructure.
Fiscal policy is badly needed, along with a big wealth tax to fund it.
There is a recession/depression coming this summer, and it will be here before it is announced because that is how economics works. Prepare now. Sell at the high if you own a house and do not want to live in it for the next 20 years.
I can only assume you're shorting the market right now so you can cash in on the incredibly accurate crystal ball you apparently have in your possession?
If you're absolutely certain there will be a recession or depression in the summer, shorting the market isn't gambling, it's smart investing.
You're advising people to sell their homes based on this information you claim to have. If you're not willing to trade on this claim, why should anyone else?
yes because our current economy is leveraged which means even the slightest deviations in key figures like this would send ripple effects. If you keep the interest rate low long enough people will just borrow themselves to no end.
> The U.S. economy contracted in the first three months of the year, but strong consumer spending and continued business investment suggested that the recovery remained resilient.
...
> In the first quarter, slower growth in inventories shaved close to a percentage point off G.D.P. growth. Companies raced to build up inventories in late 2021 to make sure supply-chain disruptions didn’t leave them with bare shelves during the holiday season. That meant they didn’t have to do as much restocking as usual in the new year.
Similarly, from Bloomberg (https://www.bloomberg.com/news/articles/2022-04-28/u-s-econo...)
> The report is more an illustration of how GDP calculations tend to be volatile from quarter to quarter, not necessarily indicating weakness in the economy or a sign of recession. The contraction was due to a jump in imports and a drop in exports, coupled with a slower buildup of businesses’ stockpiles. On a year-over-year basis, the economy grew 3.6%.
...
> Together, trade and inventories subtracted about 4 percentage points from headline growth. Government spending shrank, also weighing on GDP. But real final sales to domestic purchasers, a measure of underlying demand that strips out the trade and inventories components, accelerated to a 2.6% annualized rate.
As always: synthesize from multiple news sources.