The GDP numbers released yesterday looked bad and marked the third consecutive decline in GDP. The economy shrank at 6.1% and the only glimmer of hope was — consumer spending.
When we entered this year, a lot of people expected recovery to begin in the second half of the year, but now it seems that the recovery is going to start only at the beginning of next year. This is what the IMF said some time ago, when they said that the global economy would shrink this year and then growth will only begin in 2010.
The only good news is that although the economy has done as badly, as it did in the last quarter — the declines came from diminishing inventories and investments, which adjust themselves to lower demand.
Here is a chart that compares how the two consecutive quarters fared.
The first three bars on this graph are consumer spending which fell rapidly during the last quarter and recovered in this quarter. Then the next two bars show business and housing investments, both of which were worse than last quarter.
Business investments fell because of the decline in consumer spending in earlier quarters and that makes the 6.1% – number a little less worse, than it appears. Since, consumer spending has shown sign of stabilization — business investment will also follow suit in the near future and stabilize quickly.
The fact that trade fell consistently is a really bad sign because countries use exports to claw their way out of a recession, but, if the whole world is struggling, then who can you export to?
I can’t wait for 2010 to arrive.