A lot of people say we’re in a recession, but are the numbers backing that up?

Today – Thursday, July 31 — the Gross Domestic Product (GDP) data is available for the second quarter. As expected, the number’s showing a 2% growth. So, the first 6 months of 2008 still have the economy growing since the 1st quarter (1% GDP) and the 2nd quarter (2% GDP).  Yet most economists believe we’re in a recession and have been since January.

Most times recessions start out with positive growth in their first quarter. We just had a recession in 2001 with two consecutively positive starting quarters.

In late July of 2001, the second quarter data showed the following:

Source: BEA

The first quarter of the recession had 2% growth, it was revised to +1.3% by the time the second quarter GDP was released. The second quarter was +0.7%. So just seven years ago we were in a recession and had two positive quarters of GDP.

And this data was persistent. For another full year, until July of 2002, these two quarters remained positive, yet the National Bureau of Economic Research (NBER) announced the country was in recession.  

Why would we have positive growth during a recession? Especially a recession that most likely started in December of 2007 or at latest January 2008. There are many factors that can influence the answer — difficulty of measuring turning points, quarterly pattern on monthly data, trade swing on a weak dollar.

Our current 2nd quarter was up, but it was somewhat influenced by the stimulus checks from the federal government.

Without that help the 2nd quarter would have been negative. That still leaves us with one positive quarter. But again this is perfectly normal — discussed in detail here.

The recessions in 2001, 1990, 1980 and 1973 all started with positive quarters. Years later some of these would be revised to a negative number, but they normally start out as positive. 

So although the stock market may take off on today, positive GDP is normal during a recession.

Update: BEA just revised one of our positive quarters as a negative

 
In our weekly “Ask the Economist” feature, our resident Economist, Mike Donnelly, will be tackling your questions about the economy. If you’ve got a question — and no topic is too big or small — you’d like him to field, e-mail us at economist@pbp.com or leave your queries in the comments section.

Tags: GDP, Growth, National Bureau of Economic Research, Recession