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USA Economy Slowing With GDP At 0.7%? Recession Coming?

Jan. 30, 2016 8:02 AM ET1 Comment
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The advance estimate of fourth quarter 2015 Real Gross Domestic Product (GDP) is a positive 0.7 %. This is a significant decline from the previous quarter's 2.0 % if one looks at quarter-over-quarter headline growth. Year-over-year growth declined but "only" to 1.8 %.

Headline GDP is calculated by annualizing one quarter's data against the previous quarters data (and the previous quarter was relatively strong in this instance). A better method would be to look at growth compared to the same quarter one year ago. For 4Q2015, the year-over-year growth is 1.8 % - significantly down from 3Q2015's 2.1 % year-over-year growth. So one might say that GDP decelerated 0.3 % from the previous quarter.

Real GDP Expressed As Year-over-Year Change

Notice that the year-over-year change is about mid-stream of the growth seen since the end of the Great Recession. There is just too seasonality which affects GDP headline quarter-over-quarter calculations - and the only "safe" way to view GDP is year-over-year.

The table below compares the quarter-over-quarter 3Q2015 third estimate of GDP (Table 1.1.2) with the advance estimate of 4Q2015 GDP which shows:

  • consumption for goods and services declined.
  • trade balance degraded
  • there was significant inventory change removing 0.45% from GDP
  • there was slower fixed investment growth
  • there was little change in government spending

The arrows in the table below highlight significant differences between 3Q2015 and 4Q2015 (green is good influence, and red is a negative influence).

[click on graphic below to enlarge]

What I am most concerned about is the rise in services contribution to GDP - as services rise as a percent of GDP leading into recessions.

In any event, it is still to early to forecast a recession. Too many things can happen to affect the economy. But at this point it seems the downside risks are high.

Other Economic News this Week:

The Econintersect Economic Index for February 2016 declined again, and is barely positive - and still remains at the lowest value since the end of the Great Recession. The tracked sectors of the economy which showed growth were mostly offset by the sectors in contraction. Our economic index remains in a long term decline since late 2014.

Current ECRI WLI Growth Index

The market (from Bloomberg) was expecting the weekly initial unemployment claimsat 281 K to 290 K (consensus 285,000) vs the 278,000 reported. The more important (because of the volatility in the weekly reported claims and seasonality errors in adjusting the data) 4 week moving average moved from 285,250 (reported last week as 285,000) to 283,000. The rolling averages generally have been equal to or under 300,000 since August 2014.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2011 (red line), 2012 (green line), 2013 (blue line), 2014 (orange line), 2015 (violet line)

Bankruptcies this Week: Verso, Nuo Therapeutics, Liquid Holdings Group

Please visit our landing page to view all of our analysis this past week.

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