By Brandon Clay
With weeks of positive vibes behind us and a climbing market to boot, the unwelcome cry from Friday was: ‘Hold the celebration – the recession has been extended.’ The 2nd quarter gross domestic product (GDP) numbers were released on Friday. Here’s what Bloomberg reported:
“The first 12 months of the U.S. recession saw the economy shrink more than twice as much as previously estimated, reflecting even bigger declines in consumer spending and housing, revised figures showed.
The world’s largest economy contracted 1.9 percent from the fourth quarter of 2007 to the last three months of 2008, compared with the 0.8 percent drop previously on the books, the Commerce Department said yesterday in Washington. Gross domestic product has shrunk 3.9 percent in the past year, the report said, indicating the worst slump since the Great Depression.”
The problem wasn’t so much with the better-than-expected GDP in the second quarter, but more about the downward-revised numbers from the first quarter. As a result, the market took an immediate hit but recovered by the end of the day. However, the worries extend beyond one-day results. What does this mean for the current recession?
Typically, recessions are defined by two consecutive quarters of negative GDP. According to the Cambridge-based National Bureau of Economic Research, the current recession began in December of 2007. Since recessions in the past fifty years last 11 months on average, that makes this current 19 month-old downturn look worse. How much longer will it last? It’s hard to say.
On Saturday, the President said it would take ‘many more months’ for the US to fully-recover from the current recession. Speaking as the Economist-in-Chief in his weekly address, he said the recession is ‘even deeper than anyone thought.’ At first glance, Obama’s address was more of a pep rally for his stimulus plans. But if you read between the lines it’s a full-on admission our economic situation is worse than he has admitted to date.
Friday’s revised 1st quarter GDP numbers were twice as bad as they had previously reported. Then on Saturday the President admitted to further economic weakness just before pumping Federal efforts to stem the decline. I’m sure Bernanke and other government promoters will be out in force in the next weeks to continue softening the bad news.
The question is, what will they say about unemployment this coming Friday? Or what about revised 2nd quarter numbers in November? Is this just a shell game of holding bad numbers as long as possible in hopes of nobody caring? That seemed to be the market’s collective response on Friday. Maybe they can fool us then too.