The Recession that Wasn't

According to The Wall Street Journal’s Greg Robb, consumer spending adjusted for inflation declined 0.1% for the second straight month in May.  This could be the first concrete indication that we are entering a much anticipated double-dip recession.  Consumer spending drives the US economy, and if it continues to decline, we will be back to double-digit unemployment quicker than a lion can spot a limping wildebeest.

In another article by Robb that is less than a month old, he reported that housing is already in a double dip recession.  U.S. home prices fell in March for the eighth straight month, confirming the beleaguered housing market has entered a double-dip recession, according to a closely followed index released Tuesday.  Prices fell in 18 of 20 cities in March on a monthly basis.  Only Washington, D.C., and Seattle showed advances. 

The Atlantic’s Daniel Indiviglio’s article points out that consumer spending generally makes up around 70% of the nation's GDP.  So when spending grows, the nation grows.  But when spending slows, so does overall growth.  That is right; it is 70% of the US Gross Domestic Product.  The economy had been limping along at an inadequate 1.8% already, and now there have been two consecutive months of decreased consumer spending.

If GDP growth is insufficient to offset population increases, unemployment will rise, and this will exert downward pressure on consumer spending because fewer people will be working.  Referencing the chart above, Indiviglio observes that at no point over this six-year period has consumer spending fallen without GDP also falling.  So as consumer spending growth slows, there's reason to worry about overall GDP.  If weakening economic confidence is causing Americans to grip their wallets a little more tightly, then GDP growth will likely begin to contract.

If GDP contracts, unemployment increases, and consumer spending plummets, and all do so simultaneously, it could signal a downward economic spiral worse and longer lasting than the one that the National Bureau of Economic Research alleged had ended in August of 2010.  The NBER sounds impressive until one learns that its members share a preference for Keynesian economic theory and that some of its prominent members are former economic advisors for Team Obama. 

The combination of high unemployment, shrinking GDP, eroding consumer confidence, and declining consumer spending generally combine into an event known as a recession.  However, the mainstream media claim that things are just peachy.  It seems as though these events are only an economic recession when there is a Republican in the White House.     


May your gods be with you.