GDP Plunge Makes a Recession More Likely
Writing at AEI, James Pethokoukis looks at the downward revision of the GDP number from 1.7% to 1.3% and worries that "U.S. economic growth is dangerously slow."
I’ve frequently written about research from the Fed which finds that since 1947, when two-quarter annualized real GDP growth falls below 2%, recession follows within a year 48% of the time. And when year-over-year real GDP growth falls below 2%, recession follows within a year 70% of the time.
Citigroup has also taken a shot at determining the stall speed: “Specifically, when U.S. growth has cut below 1½ percent on a rolling four-quarter basis, it has tended to fall by nearly 3 percentage points over the following four quarters, and the economy has typically entered recession.
Bottom line: Growth the past two quarters has averaged about 1.6%. Not only does this mean the economy is growing more slowly than last year’s 1.8%, it is also slow enough to signal about a 50% chance of a recession within a year. And the third quarter also looks weak.
The anemic, three-year-old U.S. recovery is already running out of steam. And if it does, it may be several more years before we see unemployment below 8%.
Can Obama blame a second recession on Bush? Sure he can and probably will. The startling lack of good economic news recently -- even the dismal housing numbers which have been trumpeted as proof that housing is "recovering" -- don't appear to be having much effect on the race. It seems that voters have either made up their minds that Obama is mostly blameless for the lousy economy or simply believe that Romney is an unacceptable alternative.
The Obama campaign has been relentless in defining Romney as a combination Scrooge and Babbitt. Romney has not done enough to push back against this characterization, although he has just released what appears to be a very effective ad where, for the first time, he talks directly into the camera about his concern for the poor and middle class.
But where Romney must make his mark is in the first debate next week. He won't get a second chance.
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