James Pethokoukis

Politics and policy from inside Washington

Just how worrisome is the U.S. growth slowdown?

April 12, 2011

After taking a look at the new trade numbers, Wall Street firms are slashing their GDP growth forecasts for the first quarter of this year. Both Macroeconomic Advisers and Morgan Stanley now think growth will be just 1.5 percent. We are getting into dangerous territory, so says the Dallas Fed:

Does the slow growth necessarily foretell a double dip? Just as a bicycle requires momentum to stay upright, history tells us that once the economy slows to a sluggish growth rate, it will likely fall into a recession. This “stall speed” appears to be 2 percent annual real GDP growth. Every recession since 1970 has been preceded by expansion of less than 2 percent, though there was a false alarm in 1995. The second estimate of third-quarter GDP shows real output rising 3.2 percent over the past year.

And a chart illustrating the same point:

dallasfed

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