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Slowing Economy?

Posted By Barry Ritholtz On August 10, 2004 @ 12:41 pm In Finance | Comments Disabled

One of the things I keep hearing regarding the “Slowing Economy” is how we are in danger of slipping back into a recession.

I think this is a wrongheaded view; It presupposes that the economy was in a full blown hi speed recovery, and now – suddenly! – we’ve slowed down.

This is the residual result of the torrid 3rd quarter pace of expansion, as the full weight of the stimulus was coursing through the economy.

The reality is that the 9% (annualized) GDP rate was (and is) unsustainable. Since then, we’ve had an anemic but sustainable post bubble expansion. Blame productivity [1] or slack in the Labor market, but quite frankly, that’s not so awful, considering.

One of the issues the markets have been grappling with (amongst other issues) is the ratcheting down of unreasonable expectations.

The economy hasn’t actually been slowing that much if you are expecting a 3–4% GDP [2]. However, if you were waiting for 5 or 6% growth, than of course you’ve been disappointed.

Think about that as we wait for the Fed . . . That’s really why an increase isn’t such a far fetched idea. Remember, they have been saying in the past that the risks appear to be balanced — that’s hardly the language of a 6% GDP . . .


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URLs in this post:

[1] productivity: http://bigpicture.typepad.com/comments/2003/06/the_new_product.html

[2] 3–4% GDP: http://bigpicture.typepad.com/comments/2003/08/gdpjobs_disconn.html

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