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April 30, 2008
The "r" word -- and stimulus
Well, the debate will begin as to whether the US economy is in a recession, a slowdown or what. This morning, BEA said its advanced estimate of the 1Q GDP growth was 0.6% (at an annual rate). GDP grew by only 0.6% in the fourth quarter of 2007. The old rule of thumb (which the official arbiters of recessions at the NBER don't use) is two quarters of negative GDP growth. Now we have two quarters of very slow growth. On previous occasions, we have called this a "growth recession" -- not negative, but not strong enough to absorb the growing population. Hence unemployment usually rises.
Not surprising, residential construction was the biggest drag on the economy. But all other investment was down as well. Durable and nondurable goods consumption were down as well. Only consumption of services grew. Most of those "services" however are housing and medical care. Purchases of IT equipment and software increased as well (counted under the category of "fixed investment").
The news media is already calling this good news. According to Reuters (via the New York Times) U.S. First-Quarter Growth Stronger Than Forecast, the number "handily topping a forecast for 0.2 percent growth in an advance poll of economists by Reuters." The Wall Street Journal was a little more restrained -- Economy Grew 0.6% in 1st Quarter Despite Weak Consumer Spending: "Economists surveyed by Dow Jones Newswires expected 0.6% GDP growth during the first three months of 2008." It looks like folks are just happy to see a positive number, regardless of how small.
The slow growth may prompt some to call for an additional stimulus package. On the other hand, the Administration is already stated that it prefers to wait and see how the tax refunds work out. Those checks are in the mail now. But since GDP is a quarterly number, their effects will not be known until the 2nd quarter advanced estimate is released in July.
If there is a further stimulus package, it should include some elements that help the I-Cubed Economy. Let me make a suggestion. Add a tax break for worker training -- a knowledge creation tax credit. In a time of slower production, rather than send workers to the unemployment office, let's send them to the classroom. If we can give companies a tax break for a new piece of equipment (as we did in the first stimulus package), surely we can give companies a tax break to upgrade their most valuable asset: their workers.
Posted by Ken Jarboe at April 30, 2008 09:00 AM
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