Fisher Investments Editorial Staff

What Recession?

By, 08/29/2008

Story Highlights:

  • US economic growth in the second quarter of 2008 was revised up from 1.9% to 3.3%.
  • Still, true to form these days, the strong showing has been met with skepticism and even denial.


Remember about a month ago when Q2 GDP was initially released? The 1.9% figure was below analysts' expectations of 2.3% and the market had a wobbly. Recall, however, analysts expected a 0.5% reading as recently as June, but revised their expectations dramatically upward at the last minute when it was clear the economy wasn't so bad. We wrote then that the 1.9% figure would surely be revised and, as expected, it was. And it was revised upward—significantly.

Clearly, despite nonstop hectoring headlines to the contrary, global economic fundamentals are better than most believe. And for the US, the 3.3% reading is pretty much smack dab average and normal. We understand one quarter's GDP reading shouldn't be viewed in a vacuum. But considering 2008 hasn't seen a negative quarter of GDP growth yet, it's a touch silly to continue insisting we are now wallowing in recession—save a gargantuan downward revision next month, which is highly unlikely.

What's perplexing is that folks have been uniformly down in the dumps about the global economy for an abnormally long time. Folks are clearly able to identify the pockets of weakness, but seem blind to the pockets of strength (e.g., consumer spending, exports, corporate earnings ex-Financials). But negatives don't inherently have more impact than positives. Economies don't work that way. And never, even during periods of the most robust growth, are all economic areas experiencing uniform strength.

Perhaps because of the market's sharp decline from November highs, folks remain skeptical about the revised GDP figures, preferring to focus only on negatives supporting dour views. They claim it's "just because" of the weak dollar or "just because" of strong exports.

Some pundits claim the surprising strength is due to the stimulus package and the stimulus package alone. They claim we're in for more trouble when the stimulus package "effect" diminishes. But these are the same folks who complained the stimulus package wasn't big enough and would have zero impact! We suspect the truth is somewhere in the middle. The rebate checks may have had some fleeting impact, but in a $14 trillion economy, nowhere near enough to explain the totality of the healthy Q2 growth.

And don't forget those analysts saying "Okay, maybe not this quarter, but next quarter will bring the economic pain." Expect to see them again if GDP surprises upward in the third quarter. Of course, recession is always a risk. But you know what they say about stopped clocks.

Folks are decidedly gloomy for some reason we can't identify, but it shouldn't be because of the economy. We don't foresee a surge of rationality suddenly enabling people to see the world the way it is—it almost never works that way. Folks are nearly always too gloomy, and sometimes overly exuberant. But this is what makes markets go. And as people scramble to excuse what is perfectly normal economic growth—and far-better-than expected to boot—note that reality is and continues to be better than they think.

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.


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