'Growth Recession' Latest Bad News for Faltering US Economy
CNBC.com Senior Writer
In addition to all the other ignominy heaped upon the US economy comes the latest insult Friday—confirmation of a “growth recession” that foretells a long, ugly road ahead.
“Growth recession” is a term that means the economy actually is growing but not at a fast enough pace to head off rising unemployment, which is at 9.2 percent and trending higher.
The term was unleashed Friday by Deutsche Bank economist Joseph LaVorgna, who said the government’s latest reading on the economy showing just a 1.3 percent gain in gross domestic product in the second quarter is ominous in more ways than one.
“The disappointing Q2 GDP results and downward revisions to the prior three quarters lead us to believe that this (growth recession) indeed is the case,” LaVorgna wrote in an analysis.
Consequently, he has lowered his forecasts for the rest of the year, predicting just 2.5 percent growth in GDP for the third quarter—a full percentage-point cut—and just 3 percent growth in the fourth quarter, a major downward revision from the original 4.3 percent expectation.
And that’s not all.
Should the debt-ceiling impasse continue in Washington and cause a government shutdown, LaVorgna said that could shave another 1.3 percentage points off the third quarter.
“A lengthier shutdown could have a significantly more deleterious effect, although we continue to believe that this will not be the case,” he said.
So you see where this is heading?
The second quarter already has sustained a hideous revision from what was thought to be 1.9 percent growth all the way down to 0.4 percent, less than half a percentage point away from a full-bore recession indicator.
With the weakest indicator in Friday’s GDP reading being consumer spending and America facing a debt downgrade, a “growth recession” could be an optimistic scenario.
Economists grasped Friday to come up with adjectives to describe the sad shape of the economy.
“That was one horrible GDP report,” wrote David Rosenberg, economist and strategist at Gluskin Sheff in Toronto.
Rosenberg pointed out that normal GDP at this stage of a supposed recovery would be 3.6 percent, not 1.3 percent, and the overall average GDP since the recession ended has been 2.5 percent—“the weakest ever.”
“It would seem that the punishing run-up in gas prices, the ongoing deleveraging process, the weakness in home prices and the lack of job creation are taking their toll on the household sector, and now with no antidote from Uncle Sam’s checkbook and Uncle Ben’s printing press,” he said.
Rosenberg points to trends in past economic recoveries, which find that “once the economy slows to such a tepid pace, it doesn’t stop here. Recessions at that point were unavoidable.”
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