The news has been inundating us over the past couple of months that we're in a recession. They have claimed that because of the housing crisis the recession is on us. Well, the numbers came out on April 30. Once again, the news is wrong.
A recession is defined as two consecutive quarters of negative growth. In the fourth quarter of 2007 the economy grew at 0.6%. Since there was growth in the fourth quarter, we cannot officially be declared in a recession until at least June 30, 2008. If the growth rate had come in at a negative growth at the end of March (reported on April 30), we still can't be declared in a recession until the end of June, which would be reported in mid to late July.
However, the economic numbers came out on April 30 for the first quarter. Once again, the economy grew at 0.6%. Anemic? Yes. Slow? You betcha. But it's still GROWTH. So this now means that we cannot be officially declared in a recession until at least the end of September, reported in Mid to late October.
The news has cited as their main reason for declaring that this is a recession is that their polls say that people feel like they are in a recession. This report that came out in April should prove to you that reporting people's feelings is not the same as reporting the facts.
One of the first indicators that we're headed into a recession is the unemployment rate would jump. It hasn't. The unemployment rate did increase from 4.6% to 5.1% over a four month period, but that's not a significant jump. If we were to see unemployment jump to 6% in a two month period and then a little higher after that, it would be a good indication that things are getting worse. However, the unemployment rate just dropped to 5% in April. Another indicator is consumer confidence would drop. It did drop. Then it went up. Then it came down again. Then up again.
With the stimulus package that was passed and the checks having started going out this past week, I believe that the economy will get a needed boost. The question then becomes, will it be enough to boost the economy into performing well after all of the checks are distributed? Since these checks will be distributed over the next few months, it is unlikely that the economy will see a drastic downturn before spring of 2009.
It is interesting to note that these problems with the economy have come about since the election of 2006 which is when the Democrats took over Congress. It appears that since that election, people are more cautious with their hiring, their spending and their savings. We know from history that tax cuts stimulate growth in the economy and tax increases cause a constriction in the economy. Since we also know that Democrats look to raise taxes, it makes absolute sense to me that the slowdown in the economy has a direct correlation to the election of Democrats to the Congress in 2006.
Again, it comes down to the Ownership Society vs the Community Society. When people have their own money to make their own choices with, the economy thrives. When government confiscates more of that money and tells people how they must spend it, or spends it for them, the economy constricts.
We are facing massive tax increases on January 1, 2011. If the Bush tax cuts are not made permanent by then, the Democrats will have put a horrendous tax increase on us. Income, Capital Gains, dividend and death taxes will all increase substantially. I refer you to a previous blog on here that shows this in more detail.
The good news is that at the worst, the economy cannot be declared a recession until October of this year and that's not likely now.
I welcome your comments.