The pro-Bush folks say this 92K number will also be revised upward, and that our productivity is at such a high level now, that it is natural for growth rates to level off. So a new growth rate of 1-2% is very good, based on the economic boom we’ve had. This same guy calls me a doom and gloomer.
However, if you look at history, each of the 13 GDP declines (a lower rate of growth) since the 1950’s has led to a bear market, where the S&P index fell at least 12%.
In the following quote from Ahead of the Curve, I just wanted to point out that the government and media report GDP in percent change from the previous quarter, whereas Ellis looks at the year over year rate of change. I’d like to give an example of the slowdown in the rate of change: a rise from 100 to 115, is a 15% increase. If the next year we increase to 120, we have only a 4.3% increase (5/115). So even though the number increased from 115 to 120, it was a lower percent increase, signaling a slowdown).
In the 2000-2002 recession, GDP was in 2000: 4.1%, 4.8%, 3.5%, 2.2%. In 2001: 1.9%, .6%, .4%, .2%. The recession started halfway through Q1, when GDP was still 1.9%, but the bear market began in Q2 2000, when GDP was still rising to 4.8%! Three quarters into the bear market, the unemployment rate fell to its lowest level, and capital spending stayed deceptively strong. So this again shows that employment is a lagging indicator.
Ellis explains that bear markets begin when the rate of change slows. “…most bear markets began when the year over year real GDP growth was at or near peak levels of 4% to 8% and occurred primarily as year over year real GDP increased fell TOWARD the zero level. In other words, most bear markets began when the rate of growth in real GDP was STRONG and occurred as that rate of growth slowed from peak levels….
Most recessions…occurred only after the year over year raet of change in real GDP had been declining from peak levels for at least several quarters, and often more than a year. .In most instances, by the time recession was reached, the bear market was largely over.”
So by the time economists measure a recession, the economic harm has already been done. Recessions are the end of the events, and there is too much time wasted in the media on this topic, since it is backward looking.
He continues, “By the time recession is upon us, attention might better be given to leading indicators that would help determine in advance the beginning of the next upturn.
So it is crucial for business managers and investors to distinguish between a decline in the growth rate of the economy, when most actual business and stock market harm is done, and an actual decline (recession) in the economy, which, by the time it is recognized, is little more than an afterthought.”
