Phantom Storms

The economy grew in the first quarter, but some still question whether the country is in a recession.

Story Highlights:

  • Yesterday, the BEA's initial GDP growth estimate for first quarter came in at +0.6%.
  • Despite the positive result, some will still question whether we're in a recession.
  • Many forget that economic growth undergoes fits and bursts, and we still think GDP will grow overall in 2008.


Inclement weather excited us growing up. A severe thunderstorm or blizzard might buffet the windows and knock out power lines. Awed by nature's brute force, we'd huddle and light candles or turn on flashlights. But it wasn't just the show we enjoyed, it was also the possibility of adventure and drama—we craved it. Even in the relative safety of our homes, the lightning and thunder seemed dangerous.

We mildly suspect those repeatedly calling doom on the American economy suffer from a little post-childhood nostalgia. The world's just not as exciting without tragedy, never mind boring old progress. So, it must be with some pain that those who enjoy a good thunderstorm faced the news that the BEA's initial GDP estimate for first quarter growth came in at +0.6%. (Find the official report at It's not blistering growth by any means, and it will be revised a few times, but positive growth is still not what many outside of our cubicle cluster were expecting.

Despite the positive result, some will still question whether we're in a recession. Many will inevitably argue maybe not this quarter, but next quarter for sure, that this feels like a recession, or that after removing the positive contributors, today's number is negative. See?? Negative! (Of course, you can play that game every quarter.) After pounding the table for over a year, if reality won't cooperate, sometimes it's just easier for some to "redefine" recession to fit their predisposed worldview. It might save some egos, but it's not a very good way to rationally assess market drivers.

U.S. Could Have Recession Without Drop in GDP
Rex Nutting, MarketWatch

So if the much-heralded recession still hasn't arrived, what does it all mean? The last two quarters have exhibited slow growth. Many forget that economic growth undergoes fits and bursts. Recall Q1 2007 GDP was slow only to pick up in the middle of the year. It's OK if things cool off. They can get better again. Happens all the time. Further, recall 2008 growth was forecast to be sluggish on the front half but stronger after midsummer. Even if the economy does undergo one quarter's contraction later on, we still think it will grow overall in 2008.

Fear and hysteria don't cause recessions. Neither do economic polls. Mind you, most polling of professional economists we've seen has called for continued growth. Not above average growth, but certainly not recession. And remember, everyone was saying in the third quarter we'd have recession. We didn't. Same for the fourth when dour predictions were rebuffed. Hysteria hit a fevered pitch this quarter and—still nothing. (Again, we'll have two revisions, but we think it's likely it will remain mildly positive.)

In fact, some recessions come and go without much fanfare, only officially declared quarters later. And just because a bunch of people warn a recession is coming doesn't mean it will. People frequently warn of recession and it comes to nothing—the old joke about economists predicting 11 of the last 3 recessions. Maybe recession enthusiasts are grouchy because they woke up on the wrong side of the bed or missed their morning donut. Regardless, we advise arming yourself with a little perspective to more easily ward off the purveyors of thunderbolts and lightning.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.