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Economics & Research Blog

Recession Mongers Disappointed Again

GDP for the first quarter was revised up to +

By Dr. Joe Webb
Published: May 29, 2008

GDP for the first quarter was revised up to +0.9%. Sure, it's nothing to write home about, but it's 50% higher than the initial +0.6%. (There's a pony in there somewhere, as the old joke goes). The popular and political pressure to call this a recession will probably continue to be quite substantial.
The public thinks it is. Consumer confidence was the lowest in sixteen years. What was it like sixteen years ago? Inflation was 3%, which was actually pretty good compared to today's number of +4.2%. Unemployment, however, was 7.5%. Year-over-year real GDP (not the quarterly change that was mentioned above) was +2.7% compared to +2.5% now, and on a quarterly basis was +1.6% compared to today's +0.9% report. The misery index (inflation + unemployment) was 10.5 then and is 9.2 now.
The bigger problem is inflation, and it's not being addressed. The best news from the other day was that the Fed is not likely to keep easing. That still leaves us with a dull economy and discontent among workers whose wage increases, if they get any, are still not enough to cover rising prices.
The overall picture is not as bad as the newspapers say, or the talking heads on the financial broadcasts. Remember, most of the economists and analysts work in the financial and investment services industries and they are seeing friends and co-workers losing jobs because of the subprime fallout. It's much like the publishing industry who cheered the "new economy" and the Internet because it was fun to write about and their properties had rising revenues because of all of the brand-building advertising that was gushing at the time. Now, all you get from many publishers is bad news, because they see digital media eroding their business. People vote their pocketbooks, and news broadcasters and analysts often do the same thing, forgetting that there are industries other than their own that might be in a countertrend. Those increased prices for commodities like food and energy are paying for increased wages and investments in those industries at the same time they are sapping the wallets of others. The whole economy is actually pieces that are connected in fascinating and often unknowable ways.
By now, initial jobless claims should be headed strongly upward. They're not. The four-week moving average went down last week and is still in the 370,000 range.
I've always chuckled at the ruminating about the demise of the manufacturing industries and the economy as a whole. Most of the people grousing about it teach in educational institutions (a growing and lucrative service business), work in financial services (still a growing and lucrative service business despite recent debacles), or in broadcasting and media (still a growing and lucrative service business) at business industry events and discuss it in seminars (held at hotels and convention centers, a growing and lucrative service business). I could go on, but I'll stop there. You get the point.
Keep looking for a slow and disappointing economy, with minimal increases in unemployment, but higher inflation.
I'm getting the sense that the commodities and energy prices are topping out. Of course, I can be wrong, and somewhere in business plans there should be a $200 a barrel contingency. Prices are not about to collapse, but I suspect they've reached a point where the steep climb has finally made them tired.

Dr. Joe Webb is one of the graphic arts industry's best-known consultants, forecasters, and commentators. He is the director of WhatTheyThink's Economics and Research Center.



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