Typically, GDP is studied on a quarter-over-quarter trend. From this trend, you can see that the economy declined from 2008 into 2009. Based on current thinking, we had a recession with three back-to-back quarters of negative GDP.
It appears that GDP turned the corner within the second quarter of 2009, becoming positive for the last two quarters of the year. This suggests that the recession is over and that we can expect GDP to remain positive for many quarters to come.
A Trend in Business Confidence
Yet, inventories have to be viewed as a trend in business confidence. As GDP declined, inventory reduction was a major influence on those negative numbers. Businesses were reducing inventories because of a lack of confidence in their ability to sell the inventories.
As the economy recovered in 2009, inventory growth is showing a renewed confidence that the goods will sell. The inventory component of GDP should be considered a very bullish indicator of the future of our economy.
Resilient Results
The naysayers continue to feel that the economy is weak. Yet, look at year-over-year GDP. As you study the actual results of our economy, you could argue that with all the unemployment and financial stresses, the actual performance is showing a very resilient result.
While many are comparing this recession to the Great Depression, the results point to an economy that slid but then rebounded vigorously in the face of turmoil.
Government Stimulus
Of course, the government stimulus was a major influence. Despite feelings about the amount or direction, most would have to agree that the stimulus, as it was intended, was an aid to the economy. Dr. Ed also argues that the “circuit breakers” built into the payment and extension of unemployment benefits have been effective.
“There is the good and bad,” commented Dr. Ed. “The good is that we were able to control the extent of the recession. The bad is the amount of debt we have and will create to pay for government stimulus programs.”
Mimicking the Japanese?
The U.S. national debt has made a startling leap when looked at as a percent of GDP. Not only is the growth in this relationship enormous, but our “catching up” to Japan is worrisome. Could this suggest that the U.S. economy’s future is to mimic the Japanese economy with stagnant growth and deflation?
Beating Our National Debt
The only way to beat our debt is to stoke inflation mixed with economic growth. This formula would allow our nation to create wealth that can be used to reduce the national debt.
To accomplish this, we can expect higher interest rates and higher taxes. The Fed will aid this inflation-based economy by raising rates aggressively. Most argue that this will slow the economy. The performance of our GDP would counter this argument, suggesting that our economy is on the brink of expansion.