5.5% GDP Contraction for Q4, Analysts Predict

The actual numbers from the Commerce Department are not out until January 30th. Yet both Bloomberg and Marketwatch are reporting a 5.5% annual rate drop in GDP for Q4.

Gross domestic product contracted at a 5.5 percent annual rate from October through December, the biggest drop since 1982, according to the median estimate in a Bloomberg News survey ahead of Commerce Department figures due Jan. 30.

Real economic activity fell off a cliff during the fourth quarter, producing a sharp drop in employment, output and spending," wrote economists at Wachovia.
And the worst part is that it's not over. Economists expect another huge decline in the first quarter, with a smaller contraction in the second quarter

This is the worse drop since 1982 and it ain't over by a long shot according to analysts.

Here's something even more scary. This isn't like past recessions.

Every other time in the modern era that the U.S. economy has contracted more than 5% in a quarter, falling inventories have been a major reason, if not the single biggest factor. Usually, really bad recessions are worsened by the need for companies to get rid of all the stuff they made but nobody bought. Once the inventories are sold off, the economy can grow quickly again because idled workers are called back.
But so far in this recession, the inventory cycle hasn't been a major factor, outside of the housing and auto sectors. That means that we can't look forward to a quick reacceleration as the inventory cycle turns. This recession is rooted in a severe credit squeeze and a fundamental readjustment in consumer demand, not in the typical inventory cycle.

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