posted on Aug, 16 2006 @ 09:56 AM
Originally posted by Number23
Originally posted by lardo5150
I was under the impression that we are in a state of "recession"?
with high gas prices and such, this can cause a company to lose profit because consumers are not traveling or venturing out that much.
In contrast to popular belief, a recession is not correctly defined as a drop in a country’s real Gross Domestic Product (GDP) for two or more
successive quarters. Rather, it is a period of simultaneous declines in coincident measures of overall economic activity such as output, income,
employment and sales. In fact, the 2001 U.S. recession did not see two successive quarterly declines in real GDP.
America couldn't be further from a recession, since we've had more than six straight years of economic expansion. Q1 was 5.8% (!) and Q2 came in at
2.5%. What! GROWTH IS SLOWING?!!!
Sustained 6% growth for an industrial economy is inflationary and unsustainable, so a lower Q2 number was good. Look for the Q2 figures to revised to
upward when the final numbers come out (my guess: 2.9%). AND Q3 will tell the tale of the tape. If Q3 is around 3% then all is well, if it comes in
closer to 2% than a mild recession might be in the cards. Higher fuel prices are a drag on growth, it's just hard to say right now how much a drag
it will be.
However June retail sales came in above expectations and the latest wholesale prices number were way below expectations, greatly easing inflation
fears. That's why the DOW was up 132 today. It also means the Fed won't raise rates at their next meeting.
If there is a recession (I personally doubt it) you can blame Berneke and the Fed. That last several interest rate hikes were completely unnecessary
and harm growth.
Don't be so cavalier, Number23.
In fact, many very bright financial minds feel we're on the precipise of a recession.
First, I believe GDP growth last quarter of 2.5%. I think 2.2% was due to the housing industry. We all know that housing is undergowing a
contraction, or at least a slowdown. So assume housing drops to zero, that means our GDP, theorhetically, can drop to .3% -- very close to recession
(meaning GDP flattens or actually reverses).
So with such a slight margin of .3%, it wouldn't take much else to tip the scale to the negative.
That being said, perhaps the biggest indicator of a coming recession is our inverted yield curve. Basically an inverted yield is when the return on a
10-year or more treasury rate is actually less than short-term treasury rate returns (short-term generally defined as 2 years or less).
Common investing sense dictates that the longer you loan someone your money, the more you should see a return. For example, if I give the government
$1,000 for 30 years, I should get a heaftier return for that money than if I loaned the same amount for only say 2 years.
But throughout our economic history there have been instances where the opposite occurred, i.e. the inverted yield curve. And each and every time they
have occurred, we've slumped into recessions (anyone remember the 2-month inverted yield just as the tech bubble burst during 2000?).
We've been in that state for the past six months. So by that dictate alone, I feel recession is upon us.