The Great Recession, by Tim Duy: Economic weakness that in many ways did not qualify as recessionary turned for the worse in the third quarter. Incoming data continues to paint a picture of an economy that clearly slipped into recession. Indeed, the worst financial crisis since the Great Depression will likely prove to yield the worst recession since the 1980’s. It seems fitting to describe the unfolding scenario as the Great Recession.
While the advanced GDP report revealed only minor headline contraction in the third quarter, the underlying details were undoubtedly distressing. Household budgets, under fire from all quarters, lost the spending battle, and the resulting 3.1% decline in consumption was the worst since 1980. Investment spending is poised to trend even lower in the future – the credit crunch will weigh heavily on equipment and software spending and the remaining bright spot, nonresidential investment. Growth was bolstered by an inventory accumulation, but that will almost certainly be reversed fourth quarter given the drop off in activity in September. Export expansion is threatened by the global slowdown, leaving only the offshoring of domestic weakness – import compression – to support net exports. And the support offer from government spending does not look sustainable (without fiscal stimulus, of course), as it was goosed by a burst of defense spending.
In short, there was not much to like about the GDP report. And, as if to add insult to injury, the early reads on the October data leave one feeling queasy. The Chicago Purchasing Managers report came in well below expectations, suggesting that Monday’s ISM release will be ugly. Consumer confidence tumbled, heading back toward lows recorded earlier this year. And firms are lining up to deliver layoff announcements; better now before the holiday season is in full swing. Some retailers, seeing the writing on the wall, don’t even hold out hope that Christmas shoppers will save them.
And with that special season approaching, I think it is only right to give thanks to Felix Salmon, who directs us to heartfelt and poignant stories of families struggling in these troubled economic times on only $500,000 a year. Take note that these families are not rich – as the article makes clear, they do not have their own private jets. And personal hovercrafts are out of the question.