Is the Economy Improving?

April 30, 2009 by  
Filed under Economics

gdp_largeWe are hearing and reading some positive economic news this week. The stock market has responded favorably.

Pardon the interruption to your warm glow but don’t be misled by what you have heard and read.

Things are not always as the popular media would have us believe, either positive or negative. No surprise there.

I don’t plan on digging deep into the present economic scenario today. Most people aren’t paying attention anyway, now that we have a new flu pandemic to worry about.

But I thought you might be interested in a couple of helpful economic charts from the Bureau of Economic Analysis.

Gross Domestic Product is …. Gross

First, we have a chart showing quarter-to-quarter growth in real Gross Domestic Product. GDP is one of the best measures of the broad economic picture.gdp_large

Did I say “growth”? A 6.1% first quarter decline in GDP is stunning.  It makes 2008 look like a fantastic year in comparison.

Together, the 4th quarter of 2008 and the first quarter of 2009  provided the worst six month GDP performance in over 60 years.  If you don’t believe me, check out this chart comparing the present recession to its historical cousins.

Look at the bright side. We are making history –  something to tell your grandchildren while they are slaving away to pay the bills for current government spending.

Consumer Spending and Personal Incomes – Out of Sync?

Speaking of spending, consumers are starting to feel good about going into stores again. The problem is that the consumer spending part is not being matched by the personal income part, as this BEA chart shows:


I haven’t completely thought through the significance of the data, but it appears that disposable personal income is still declining while consumer spending is increasing. If this is true, it must mean what?  Credit?

The hard truth is that we are not out of the economic woods yet. Indeed, if this flu pandemic hangs around a while, our visit into the forest may be extended for a while.

Maybe you should sell your airline stock and use the cash to buy food, surgical masks, and Tamiflu.

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6 Responses to “Is the Economy Improving?”
  1. lurker carl says:

    The talking heads are not telling us the truth, they are selling stories.

    I don’t believe the flu pandemic is actually a pandemic. The death rate for this strain is no greater than the typical influenza outbreak. Mexico’s mortality rate is higher due to social and economic conditions there, most of their swine flu cases are never diagnosed or reported – only the deaths. Mexico is still a third world country, consider any “official reports” coming from their government to be suspect.

    I do not think the economy is going to improve dramatically before credit card defaults become the next crisis. And when the taxes are substantially raised to pay for the recent spending spree, the economy will stumble for a long time to come.

  2. PW says:

    This reminds me of the recent bank fiasco. A few months ago they were desperately broke, needed financial stimulus from taxpayers, and miraculously a few months later have billions of dollars and huge profits. Likewise I laughed when they said the economy is getting better. Believe nothing of what you hear and 1/2 of what you see. And lurker carl says it exactly: this is no different then any other flu. Just that it is being used as a diversion from our crumbling economy. Keep us worried about something else. I think it is just a diversion – can’t worry about economy when freaked out about the flu. Also the flu could be used to push national healhcare, that should follow soon-how the flu epidemic will not be an epidemic when we get national healthcare. And since I am on a rant, of course America spends more $ on healthcare then any other nation–heck yes, how much $ does a 3rd. world country spend on healthcare-$0 because they have no $, same as in Mexico. These countries that have national plans don’t spend much $ on healthcare because they ration it. OK, I am done.

  3. Rick Beagle says:

    Dr. Paul Krugman said in a recent article:

    “There may be other shoes yet to drop. Even in the Great Depression, things didn’t head straight down. There was, in particular, a pause in the plunge about a year and a half in — roughly where we are now. But then came a series of bank failures on both sides of the Atlantic, combined with some disastrous policy moves as countries tried to defend the dying gold standard, and the world economy fell off another cliff.”

    Rick Beagle

  4. kitty says:

    About this flu. What makes this flu different is the type of patients who are dying. In your normal flu it is those with weaker immune system – the elderly and the children. With this flu most of those who died in Mexico were adults between the ages of 25 and 45. The only other flu where most of those who died were healthy adults was the one of 1918-1919. I believe this is why everyone is so worried. Additionally, nobody knows the true death rate: in Mexico we don’t know how many people actually got sick and just recovered at home. In other countries the cases have been mild, but nobody understands why. A bit of good news I just heard on TV that scientists did genetic analysis on this virus and it lacks some protein that is associated with virulence. So maybe it is not that bad – unless the virus mutates. As to the media – a pandemic would bring higher ratings than a garden-variety flu.

    If I only knew what would happen with the economy… There are still a lot of problems in the economy and some potential losses – commercial real estate, credit cards. On the other hand, there is also a lot of money being injected into economy that is boudn to have some effect. The credit situation is much better too: the spread between Libor and treasury rates is at where it was before Lehmann collapse although not quite where it was in 2007, corporate and municipal bond yields came down quite a lot.

    Regarding consumers. I don’t know if their calculation of disposable income includes the fall in the gas prices. For those who drive long distances, these are large savings that could be used for other things. One thing I just saw mentioned on TV is that now for the first time in many years the number of debit card purchases exceeded the number of credit card purchases. If this is correct, the increase in spending cannot be all due to easier credit.

    One thing that is different from the Great Depression situation is that the Treasury is hell-bound to prevent deflationary cycle. Could it cause inflation – maybe, but not until the economy improves for real.

    I am trying to decide if it’s time to take some profits…

  5. Rob Bennett says:

    I believe that the market will recover in a long-term sense only after middle-class people regain confidence in it. I don’t think that can happen until we see more straight talk about the causes of the crash. And we do not appear to be ready for that just yet.

    We may well see a temporary upswing. But I am expecting that we will have one more major price crash to go before we begin rebuilding.


  6. MasterPo says:

    I moved a lot of money out of mutual funds into [tax free] money markets earlier this year. I put a small amount back in the last time the Dow dipped to 7800. The rest I’m keeping in cash.

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