Diary of a Financier

Q1 GDP & financial crisis recoveries in context

In Economics, Idiosyncrasy on Mon 30 Jun 2014 at 10:06

I just couldn’t resist chiming-in this weekend after I saw Yves Smith (Naked Capitalism) highlight some remarks by UMass Amherst’s Professor Robert Pollin.  Mr. Pollin explains the weak 2014q1 GDP growth rate (-2.9%) as a microcosm of the entire postcrisis recovery:

“What happened in the last quarter was broadly consistent with the weakness of the recovery, just to give some evidence on that. In the previous eight recessions that the U.S. has had since World War II, you see strong recoveries after the recession ends, so that, say, three months after the recession ends, the economy is growing on average at about four and a half percent a year. That’s positive four and half percent growth on average. In this recession, after the recession ends in 2009, average growth has only been 2.3 percent – half the rate of improvement that we’ve seen in the eight previous recessions. So we could say that this massive one-quarter contraction was a blip, but it wasn’t just a blip, because it comes amid a very weak recovery that’s been going on now for five years.”

I do not disagree with the spirit of the background Yves herself provided — that essentially “wrongheaded austerity policies” hampered the recovery.  That said, I cannot let the commentariat spew unchecked cynicism…


First off, twin housing and financial crises are a lot different than your garden variety recessions, and their subsequent recoveries are naturally different too. Financial crisis employment loss & recovery (Global, historical) (Some label the incident a “balance sheet recession.”) In fact, the US’s postcrisis recovery today has actually far outperformed the historical average, as measured by unemployment trends (% loss from the peak) after such financial crises.

Second, demographics were the last — and perhaps most fatal — factor in the Great Recession’s perfect storm.  So again, this isn’t a normal recovery that we can compare to other economic cycles. On the plus side, American demographics are slowly turning from headwinds to tailwinds. I’ve harped-on this ad nauseum, but Bill McBride (Calculated Risk) did a good job of summarizing it recently:

“Even without the financial crisis we would have expected some slowdown in growth this decade (just based on demographics).Future labor market demand- Working age population change (Global, 2010-50) The good news is that will change soon… the prime working age group will start growing again by 2020, and this should boost economic activity.

“…the working age population in the US is expected to grow over the next few decades – so the US has much better demographics than Europe, China or Japan.”

Finally, I don’t like the suggestion that the weak Q1 was synecdoche for a broader trend in the economy.  Mr. Pollin specifically says that Q1’s contraction was not a “blip.”  That’s isolated, single variable analysis at its worst — a hidden-ball-trick that ignores all data and context.  Hence, I was moved to respond:

 I know the “weather” anecdotes are a tired, catchall excuse, but data confirms the weather’s contribution to the contraction. For example, look at railtraffic, which was cascading lower at a -4% rate through February, but bounced back with +7% prints in May, raising ytd comps from sub-zero to +4% trend.  In addition:

Retail sales +4.3% headline, +2.8% core
Commercial bank credit +4.8%
Durable goods orders +10% annualized so far in Q2 (inventories are piling up but shipments just increased to +3.9% y/y)
ISM/PMI @ 55.4
Consumer indebtedness +3.7% (admittedly, household releveraging might be offset by some corporate & public sector deleveraging)

You have some irrevocably lost production, but you have to acknowledge the pent-up demand and its potential to maintain a trend growth.

Beware of ideologues and their singular datapoint.


  1. […] year, I vocally highlighted the accelerating recovery as evidenced by economic data (in March & June), which was vindicated by both a strong Q2 spike @ +4.6% saar and FY14 GDP @ +2.4%.  Lets compare […]


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