Dude, Where's my Great Depression?

Today, the Bureau of Economic Analysis in the Commerce Department released their first estimate (advanced estimate) of the Gross Domestic Product for the 2nd Quarter 2008, at 1.9%. This number was lower than the consensus estimate, which had predicted 2.3% growth for the quarter.

The media talking points for the GDP release were that the number was "disappointing," "worrying," or "surprisingly weak," and pointed to the final revision to the 4th Quarter 2007, which was revised downwards to -0.2%, indicating that the economy did contract during the last quarter of last year (during which the Fed was hastily cutting rates and businesses had reason to put off borrowing until rates went even lower, since it was clear the Fed was going to keep right on lowering rates to assuage the financial sector).

However, as economist Brian Wesbury notes today in his discussion of the GDP data, the BEA's current assessment of the first and second quarters of 2008 show economic expansion at an annual rate of 4.8%. In other words, not only have we not seen another quarter of contraction (which would fit the accepted definition of a recession) but we have seen growth at nearly 5% annualized since that quarter of contraction.

Mr. Wesbury also notes that this advance 2nd Quarter estimate includes the BEA's assumption of massive inventory decline during the quarter, and that further study will probably lead to a significant upward revision in the GDP number by the BEA.

Even without those likely upward revisions, the expansion of nearly 2% in the 2nd Quarter is nowhere near the economic catastrophe that the conventional wisdom has been confidently proclaiming is the worst since the Great Depression, backed by endlessly recycled quotations to that effect in the financial media. In fact, the overall economy is continuing to expand in spite of the housing market aftershocks of the Fed-induced malinvestment in real estate during the period 2003-2006, and the hangover in the financial sector created by massive underwriting of related securities.

We have noted recently that earnings season so far has been generally healthy and beating expectations. A week after that note was published, 348 of the 500 companies in the S&P 500 have reported earnings -- nearly 70% of the companies -- and so far 66% of them have beaten analyst expectations, with 11% meeting expectations and 22% falling short of expectations.

As Mr. Wesbury said in his piece of the GDP figures, "These are nowhere close to recessionary numbers," and we would second that regarding many of the earnings results we have seen so far.

The media will continue to flog the "worst recession since the Great Depression" story for a few more months, but we believe the data showing the real situation is out there for those who know where to look.

For later posts dealing with this same topic, see also:
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