Sputter to stall: U.S. economy dips into danger zone for recession

July 29, 2011

More evidence, as if we needed it, that the U.S. economy is in sad shape. America’s gross domestic product grew just 1.3 percent in the second quarter, according to the Commerce Department. And first-quarter growth was revised down to just 0.4 percent. This is now the weakest two-year recovery since World War II.

More importantly, it means we’re in the danger zone for another recession. Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time.

Check out this depressing analysis from IHS Global Insight, one of the economics firms the White House regulatory likes to cite (but maybe not today):

There is little doubt that, since the summer of 2010, U.S. growth has faltered—the only question now is how much weaker could things get and how long will the (very) “soft patch” last. His Global Insight now expects that growth in the third quarter will come in much weaker than previously expected—probably less than 2 percent and possibly less than 1 percent.

There is no margin for error here. Nothing else can go wrong, such as, for instance, an EU sovereign debt crisis. Oh, wait:

Italian bond spreads have widened to new highs, while Spanish debt spreads are at the doorstep of their 2011 highs. The short-lived euphoria over last week’s expanded bailout proposal—a euphoria we did not share—appears to have worn off quickly. With weakness now bleeding into the European corporate bond market and into the core countries’ data releases, a double dip recession in the eurozone is a live possibility. We wish things were materially better on this side of the Atlantic … – Michael Darda, MKM Partners.

When Election Day 2012 rolls around, it will be the economy rather than the debt ceiling debate or the killing of Osama bin Laden that will most influence voters. And time is running for a dramatic turnaround that will substantially lower unemployment or boost incomes. Just today, Gallup released some nasty poll numbers for President Barack Obama:

 

The White House and its media surrogates will continue to argue that without the $800 billion stimulus, the economy would be even worse.  Their models and multipliers are never questioned.  But to many Americans, it looks like the car is headed back into the ditch, if it ever got out.

7 comments

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/

[...] Read more from the original source: Sputter to stall: U.S. economy dips into danger – James … [...]

[...] PETHOKOUKIS: Sputter to stall: U.S. economy dips into danger zone for recession. “When Election Day 2012 rolls around, it will be the economy rather than the debt ceiling [...]

[...] Sputter to stall: U.S. economy dips into danger zone for recession [...]

[...] like this won’t improve President Obama’s ratings: More evidence, as if we needed it, that the [...]

[...] Sputter to stall: U.S. economy dips into danger zone for recession [...]

[...] James Pethokoukis | Analysis & Opinion | Reuters.com Quote:"Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP growth falls below 2 percent, recession follows within a year 48 percent of the time. (And when year-over-year real GDP growth falls below 2 percent, recession follows within a year 70 percent of the time. [...]

3 years of Obama, the democrats, and the most extreme left wing policies in our nations history, and where are we? 9.2% UNEMPLOYMENT, Record Long Term UNEMPLOYMENT, a 28 year high in the Misery Index, a Record number of People on foodstamps, nation destroying levels of debt, a stalled economy that looks headed back into recession, and the greatest example of Failed Presidential Leadership in the nations history. Obama has done everythign wrong and made everything worse. If only he had followed the Reagan example instead of joining whole heartedly in the failed policies of the extreme left! I think mosts of us new that massive growth in the size and cost of government, massive wasted corrupt speding, and record levels of borrowing and debt were the wrong things to do, but Obama assured us all would be well if we just let him spend and spend and spend, UNEMPLOYMENT wouldn’t go over 8%. What more can anyone say?

Posted by valwayne | Report as abusive

Note also that a major component of GDP is government spending, so GDP itself will be overstated when government spending is higher than normal. In other words, if the government borrows another $100 billion from China and hands it out to union buddies, GDP magically rises by $100 billion. The reality is we’re much worse off than the phony numbers indicate.

Posted by DeeBee9 | Report as abusive

Great news! With the impending downgrade in debt Obama has a great new excuse why the old stimulus didn’t work – onto the new stimulus!

Posted by RPUPTON | Report as abusive

The stimulus didn’t help the U.S. because the means of production, i.e. the factories, are almost all overseas now.

Keynesian stimulation of demand in a country without factories is like a body builder eating a sugar cube; you get a flash of energy but zero growth.

So what is the answer? I don’t know, but, I have a pretty good idea of the future of the U.S. working class – depression number two.

Posted by bearperney | Report as abusive

[...] Sputter to stall: U.S. economy dips into danger zone for recession -  James Pethokoukis, Reuters [...]

Can we slip back into recession (from which thee great mass of Americans believe we never left…)…in a word:

Yes.

Rich Vail
Pikesville, Maryland, USA
The Vail Spot dot Blogspot dot Com

Posted by rvail136 | Report as abusive

[...] James Pethokoukis | Analysis & Opinion | Reuters.com Featured Article: Review: Costco’s Emergency Food Storage Featured Article: Prefabricated Fallout Shelters Featured Article: 25+ Signs that Point to Nuclear War Published in Financial Crisis, U.S., Amp, Commerce Department, Danger Zone, Dips, Economy, Federal Reserve, First Quarter, Gdp, Gdp Growth, Gross Domestic Product, Quarter Growth, Real Gdp, Recession, Reuters, Sad Shape, Second Quarter, Shape America, Time James, world-war-II [...]

It is July 31, 2011 and we have been in a 2nd recession since January 2011. Small business and consumers have not had confidence since the Preseident began his Keynesian spending spree. This is not a cycle but a long term structural change. Most cannot concieve of a long term economy that goes nowhere, hence they expect the economy to improve. It will not. So all this “debt crisis” talk is superfulous. Congress may compromise about the debt ceiling, but tomorrw the debt will still be there.

Posted by JonTalus | Report as abusive

It will be a miracle if the US economy does not collapse before this turd of a President is removed.

If he is re-elected, things ceonomically will fall faster than anyone can immagine at this point in time.

If he is not re-elected, dozens of cities will burn, and there will be riots on the scale of the late 60′s early 70′s.

I do not have high hopes… Just a bussload of bullets.

Godspeed to all here and there.

Posted by mmercier | Report as abusive

[...] expanding at a 2 percent or higher annual pace, it risks slipping into recession. As I mentioned in a post last week: Research from the Federal Reserve finds that that since 1947, when two-quarter annualized real GDP [...]

[...] snail’s pace in the first half of this year — far slower than analysts had predicted. Researchers at the Federal Reserve tell us that since 1947, about half of the times we’ve had six months of growth as weak as [...]

[...] some sort of back-to-normal economy, there has been no evidence of such movement in three years.  Recent data indicate just the opposite: a return to recession in a year or two, if we’re not already in [...]

[...] some sort of back-to-normal economy, there has been no evidence of such movement in three years.  Recent data indicate just the opposite: a return to recession in a year or two, if we’re not already in [...]