Friday, July 29, 2011

Weak GDP numbers

The Bureau of Economic Analysis released new GDP numbers today and the news is not good.  Annualized second quarter growth was a very weak 1.3 percent, while the number for the first quarter was revised down to an anemic 0.4 percent.  Does this mean that we are headed toward another recession?  Perhaps, but it's not unusual to have growth this weak yet still not enter recession.  The chart provides GDP growth since 2003 and shows that growth was similarly weak in late 2006 and early 2007, reflecting the softening of housing markets and rising oil prices.  GDP bounced back in 2007 as oil prices fell, but then it all hit the fan in 2008.

Many economists think that oil prices are one of the keys to understanding the occurrence of recessions. If they are right, then we might be in for some more trouble.  The chart below tracks the recent movement of oil prices.  Note the sharp increase in late 2010, just prior to the recent softening of GDP growth.