Thursday, May 29, 2014

US Economy Contracts in the First Quarter

The initial release of the GDP figures earlier already showed growth close to zero. The revision has lowered even that unexpectedly negative news. The economy actually shrank last quarter.

The figures show that a good chunk of the decline was due to declines in inventory accumulation. This has lead some (here, for examples) to predict that the economy will correct in the second quarter and we will see growth above-trend growth in the coming quarter. I do not buy it. Consumer confidence and personal finance indicators are declining as well; why should firms accelerate inventory accumulation when demand is lacklustre at best? On top of that, the world economy is looking rickety, with political crises in Ukraine, Thailand, and Turkey plus a number of Eurozone countries still looking at recessions

I would even say there is some probability of the economy going into recession, but I definitely do not see growth getting much above the anemic rates that have become the new normal in recent years, and I anticipate it will be low even by those standards.

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