Current Status Business Cycle

Yesterday, April 30th, GDP was reported to have increased by 0.6% for the 1st Quarter of 2008. This period is from January - March 2008. I saw President Bush on TV giving a speech talking about how the economy had slowed and did not mention anything about a recession. I did not see any of the Democratic Party candidates talk about this economic data.

When GDP is negative for 6 months it indicates that our economy is in a recession. If the Quarterly GDP had been negative, the Democratic Party candidates would have been much more vocal. The data means that our economy is not in recession.

An excellent websites on economic data is www.bea.gov. This the website for the U.S. Department of Commerce, Bureau of Economic Analysis. GDP is reported 2 ways, in current dollars and inflation adjusted dollars. The below table shows Current GDP, in both current dollars, and Real GDP based upon 2000 dollars. Real GDP based on 2000 dollars is less than current dollars due to inflation.

Quarter/ Current GDP/ Real GDP (2000 Dollars)
2007Q1/ $13,551.9 Billion/ $11,412.6 Billion
2007Q2/ $13,768.8 Billion/ $11,520.1 Billion
2007Q3/ $13,970.5 Billion/ $11,658.9 Billion
2007Q4/ $14,074.2 Billion/ $11,675.7 Billion
2008Q1/ $14,185.2 Billion/ $11,693.1 Billion

This data shows that in current dollars GDP increased by $101 Billion or about 0.8%. Real GDP, taking out the impact of inflation, GDP increased only $17.4 Billion or about 0.1%. For the last 4 Quarters, GDP has increased in each Quarter with the last 2 Quarters having less growth.

Where are we in the Business Cycle? We are still in an expansion. We are not yet at the peak. We are not in a contraction. Does the news reports indicate that we are still in an expansion stage of the business cycle? No, it sounds like we are in a recession. Leading economic indicators suggest that we are not headed for a recession.

Bottom Line: If you invest by the news reports instead of real economic data, you will make very poor choices. Keep the faith in your investments.