Recent GDP Trends
In 2008 and 2009, the economy contracted for four consecutive quarters. The last time this happened? The Great Depression. The economy fell 1.8% in Q1 2008 with the Bear Stearns bailout, but resumed 1.3% growth by Q2. When the banking system imploded in the third quarter, the economy shrank 3.7%. The Lehman Brothers collapse delivered a crippling blow--the economy dropped 8.9% in Q4, contracting .3% for the year. GDP plummeted 6.4% in Q1 2009. By the second quarter, the economic stimulus package started to work: the economy shrank only .7% in Q2. It finally grew 2.2% in Q3 and 5.6% in Q4
. (Source: GDP Current Statistics
The financial crisis was worse than the 2000 recession, which was over by 2003 when the economy grew 2.5%. It expanded 3.6% in 2004, and was slowed only briefly (2.9%) by Hurricane Katrina in 2005. By March 2006, the economy peaked at 4.8%, driven by the housing bubble. By the end of the year, the economy only grew 2.7%.
When the housing bubble broke, the economy only grew 1.2% in the first quarter of 2007. A falling dollar boosted exports, spurring growth to 3.2% in the second and 3.6% in the third quarters. When the Subprime Mortgage Crisis hit in October, growth slowed to 2.1%. Overall, the economy expanded 2.1% in 2007.
The Philadelphia Federal Reserve predicts that GDP will grow 1.7% in 2011, 2.6 percent in 2012, and 2.9 percent in 2013. That seems reasonably conservative for three reasons:
1. First, the $14 trillion national debt the U.S. is saddled with will limit further fiscal stimulus.
2. Home prices will stay flat through 2011, thanks to an 15-month pipeline of homes going into foreclosure.
3. Commercial real estate will experience continued weakness through 2011.
Unfortunately, growth needs to be 3% or greater to really stimulate job creation
. Therefore, unemployment will probably stay at around 9% in 2011, which will limit demand and keep growth flat. Growth will come from companies that export to growing emerging market countries
. (Source: Philadelphia Federal Reserve
(Article updated September 5, 2011)