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Seeing Isn’t Always Believing: America’s Economic “Growth”

Published 08/28/08 Craig Harrington - Print Article
E-mail - editor@economyincisis.org

Americans tend to use an inaccurate measure of their economic well-being, GDP, to gauge the heath of the economy. The GDP was expected to grow by 2.7 percent in the second fiscal quarter of 2008, but the data revealed significantly more growth than previously thought with an impressive 3.3 percent. Typically, growth measured between 2.5 and 3.5 percent is a signal of economic health, according to CNN Money.

Unfortunately, the strong GDP data in the United States is very misleading, having been artificially bolstered by the Economic Stimulus Act of 2008. The data will certainly be heralded by the administration as a sign of an economic turnaround, but most market observers believe that the recent difficulties will only get worse in coming months.

The economy was struggling mightily early in the year – with measured first quarter growth at just 0.9 percent – and had actually receded in the last quarter of 2007. The second quarter outburst was an anomaly, and was not congruent with the current forecast for the United States’ economy.

"My feeling is that the recession started in the fourth quarter of 2007, I think the worst quarter will be the first quarter of 2009, which would make it a long recession," said David Wyss, chief economist with Standard & Poor's, "Mostly what this report will say is, when you give somebody an $1,800 check, he spends it."

Most economist believe that the United States is indeed in a recession, regardless of what a misleading statistic such as GDP tells them. No recovery can start until the housing market finds its “bottoming-out point”, after which point home sales and values will rise and the American consumer will actually feel some relief.

Source CNN Money:

But that doesn't mean that the United States has avoided a recession, some economists say. In fact, there are growing concerns that weakness will extend through the rest of this year and even into 2009.

But many economists say temporary factors, such as the more than $90 billion in economic stimulus checks that reached taxpayers during the quarter, make the jump in the second quarter an anomaly.

With all this in mind, several economists say they are certain the United States is in recession, and that no one should be fooled into thinking otherwise by a strong second-quarter GDP report.

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