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Hold the Depression Talk
Last Update: 02-Oct-08 12:03 ET
Key leaders have sounded some dire warnings about the fate of the economy should Congress fail to pass a financial relief plan.
Just about any press article you read refers to the current situation as the "greatest crisis since the Great Depression." The latter might be true, yet the tenor of those articles makes it sound as if we are already in another Great Depression or certainly on the cusp of one.
Those articles fail to account for the fact that we haven't even seen two straight quarters of negative GDP, which is the traditional definition of a recession.
Clearly, the economic situation isn't great but keep these statistics in mind: during the Great Depression GDP fell 30%, unemployment exceeded 20%, wholesale prices declined 33% and industrial production plummeted close to 50%.
The latest complete information available showed real GDP up 2.8% on an annualized basis in the second quarter, the unemployment rate at 6.1%, wholesale prices up 9.6% from 12 months ago, and industrial production down just 1.5% from 12 months ago.
Any attempt to draw comparisons between the current economic environment and the Great Depression is utter nonsense.
What is known of the current situation is that unemployment is rising, consumer spending is sluggish, industrial production is slipping, and housing remains in a slump.
Export growth, however, has been strong, business investment has been rather resilient, and the government... well, the government continues to spend.
Exiting September, though, the market isn't caught up so much by what it knows as it is by what it fears.
The freezing of the credit markets in late summer has been a real sticking point for economists and investors alike in thinking about the near-term prospects for the economy and earnings.
Our third quarter GDP growth forecast has come down to 1.0% (from 2.7% at start of September) and we're expecting inventories to account for half that growth.
While existing home sales are flashing signs of stabilization at depressed levels and inflation pressures appear to be moderating (as expected with the sluggish growth), other data, like the initial claims and personal spending reports, have revealed a weakening trend.
This is an uncertain time for the economy; consequently, we have a very cautious fourth quarter outlook.
The latter point notwithstanding, one can still be certain this isn't the Great Depression.
--Patrick J. O'Hare, Briefing.com
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