A brief lesson from GDP history

The Loan Officer\'s Practical Guide to Residential Finance In the fourth quarter of last year, the [tag]GDP[/tag] growth rate fell to an anemic 1.7%, sparking fears of recession. However, all signs are now pointing to a strong rebound in the first quarter GDP numbers due on April 28th. Based on this anticipated rebound, there is a growing presumption that the economy is “back on track.” It is important, however, not to be deceived by robust growth in the possible last stages of an expansion. The accompanying figures explains why, and why, as I have been warning, that this economy feels a lot like the 2000 economy.

In the first quarter of 2000, real GDP growth fell from a knockout 7.3% to a meager 1.0%, sparking fears of recession. However, in the second quarter, growth bounced back sharply to 6.4% and most everyone once again breathed a sign of relief. That was premature. By the next quarter, GDP went negative and really never breached 3% again until the second quarter of 2003. The possible parallel to the current situation should be obvious. Even if we get a blowout GDP number for this quarter as a rebound from last (estimated as high as 5% or more), that doesn’t mean that [tag]higher interest rates[/tag], [tag]higher commodity prices[/tag], a persistent[tag] oil price[/tag] shock, and a slow motion collapse in the [tag]housing sector[/tag] won’t bring a repeat of the slow-growth 2001 scenario – and validate the [tag]yield curve[/tag] inversions signaling trouble ahead.