
The US economy shrank at an annualized rate of 2.9 percent in Q1 - Bahamut
http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/economy-shrank-almost-3-percent-in-q1-holy-guacamole/
======
pessimizer
A stock market recovery is not a "recovery."

Prime-age employment:
[http://data.bls.gov/timeseries/LNS12300060](http://data.bls.gov/timeseries/LNS12300060)

Median wealth, and the median wealth of various segments:
[http://finance.yahoo.com/blogs/daily-ticker/for-most-
familie...](http://finance.yahoo.com/blogs/daily-ticker/for-most-families--
wealth-has-vanished-172130204.html)

Median income: [http://advisorperspectives.com/dshort/updates/Median-
Househo...](http://advisorperspectives.com/dshort/updates/Median-Household-
Income-Update.php)

Wealthy people cannot drive consumption, because they spend a far smaller part
of their income on it.

edit: I intentionally use the prime age employment rate (as is convention of
late) in order to avoid objections that the low employment rate is the fault
of a large segment of baby boomers retiring.

The general numbers look worse, not better:
[http://data.bls.gov/timeseries/LNS12300000](http://data.bls.gov/timeseries/LNS12300000)

~~~
sillysaurus3
That unemployment graph is rather breathtaking, both because it illustrates
how impactful the '08 crash was, and how little we've recovered since then. Is
there any chance that the graph could be misleading, or should it be believed
at face value that one in four people are unemployed?

~~~
DangerousPie
Very misleading Y axis. Here is the same plot with a proper axis:
[http://i.imgur.com/k4ClDSF.png](http://i.imgur.com/k4ClDSF.png)

~~~
pessimizer
That one is the misleading one. We're interested in the magnitude of the
change vs. the recovery, not the numbers 0 to 100.

A graph of GDP plotted as a percentage of current GDP at that scale could make
the recession seem like a tiny little 2% blip.

~~~
nostrademons
The recession _is_ a tiny little 2% blip, if you're one of the ~85% of people
who were not laid off and didn't have any trouble finding a job. And it's a
very large 2% blip if you're one of the people who are.

My point is that perspective matters - a lot. By the numbers, this recession
is worse than any since the Great Depression. By the numbers, this recession
is only a small percentage of the total U.S. economy. Which numbers are
correct? Well, they're actually the same numbers, what matters is how you use
them and what conclusion you're trying to draw.

From my personal perspective, the recession was great. It meant I could
actually get decent rents in the Bay Area for the first two years after I
moved out here, and I could pick up stocks for relatively cheap, and I had no
problem getting a job. I realize this is not the perspective of many other
people, and the numbers help tell me _how_ many other people. And one of my
professional startup interests is finding better ways to help people manage
their careers, so I'm quite interested in hearing other people's perspectives
(if you have stories or want to vent, feel free to e-mail me...I'm quite happy
to listen, my e-mail address is in my profile.) But understand that numbers
always require interpretation - whether the graph is misleading or not depends
entirely on where you're leading people.

~~~
sillysaurus3
Very good points! From my perspective, the recession was devastating. Not for
me, but for a friend's family. One of them owned a side business involving
construction. Not enough to pay all the bills, but in '07 suddenly it was. So
he quit his regular full-time job, even though he had a full family to
support. It wasn't a stupid decision though, because he had so many contracts
(guaranteed cash flows) that he could support his whole family twice over. I
remember that business was so good that he made a big show of unveiling a
wonderful grand piano for the whole family. He had the contracts to support
such a lifestyle. Then '08 happened, and the contracts were all canceled.
(Illegally, but that's beside the point; he couldn't afford to pay any bills,
let alone a lawyer to go after anybody.) I later found out he had contemplated
an elaborate suicide to collect on death insurance to provide for his own
family.

Not trying to contradict anything you've said; merely adding an alternate
perspective.

------
cs702
TL;DR: annual US GDP declined 2.9% because consumers spent less. In fact, they
are not yet spending at rates anywhere near the rates at which they were
spending before the financial crisis in 2008.

When consumers spend less, businesses in the aggregate sell less of
everything, because every dollar spent by a consumer is a dollar earned by
someone else -- usually a business.

Before the financial crisis, consumers _borrowed aggressively to finance
consumption_ , like drunken sailors... but unlike the financial sector, they
never got a bailout. They were forced by the circumstances to follow Steve
Martin's advice from Saturday Night Live: "don't buy stuff you cannot
afford."[2]

Are we really _that_ surprised that many consumers are reluctant to borrow
and/or spend like before the crisis?

\--

Edits: modified first paragraph to convey what I actually meant to say, in
response to ctl's comment. The original paragraph was poorly written. (Thanks
for pointing out the inconsistency, ctl!)

\--

[1]
[http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp...](http://www.npr.org/blogs/money/2009/02/household_debt_vs_gdp.html)

[2] [https://screen.yahoo.com/dont-buy-
stuff-000000884.html](https://screen.yahoo.com/dont-buy-stuff-000000884.html)

~~~
dclowd9901
Part of this slowdown in consumer spending also has to do with the tightening
of credit as well, making it more difficult for people without means to spend.
In my opinion this is a great thing. When people are backed against a wall
because they have no other way to pay for their livelihood than their salary,
they're not going to be ok with stagnant wages and companies low balling them.

Bring on the pain, I say. Real growth comes from companies investing in their
workforce, not people drowning themselves in debt.

Put another way: it used to be that you could buy a house for the equivalent
of a year's salary. Now it seems most houses are about 5-6x the average salary
of a given area. If that were still the case today, most Bay Area residents
should be making near 1 mil/year or houses here should be closer to about
$150-200k, more likely the latter since credit is primarily the reason for the
inflated cost.

~~~
malandrew
Interesting observation. It's really hard to shake off the shackles of
presentism and imagine what the US would look like on an alternative timeline
where the US government had not aggressively promoted home ownership and easy
credit. The economy and legislation are now so thoroughly distorted in favor
of home ownership that it's difficult to imagine how things could have been
different.

Specifically, I'm wondering if there was a time when we were having the same
debate about housing that we are now having about college tuition, but that it
has been long enough (and there have been economic gains for homeowners) that
we conveniently forget how much our longstanding policies drive up housing
prices. The idea of buying a home on a full year's salary sounds crazy, but
then again there was a time when 4 years of college could be paid off fully
via part time work while at school, something that is distant pipe dream these
days for the majority of jobs within the reach of most college students.

~~~
Zigurd
A cost revolution in creating housing is much less likely than MOOCs killing
the 3rd tier colleges.

I'd like to be in an alternate universe without the Iraq and Afghanistan wars.
Afghanistan is famously The Graveyard of Empires, and I wonder if we are not
just staggering around with a mortal wound, with another crash coming to bring
us down comprehensively. Nationalizing the ibanks instead of TARP would be a
nice alternate universe, too.

~~~
mikeash
I think we are the alternate universe. Bush's win over Gore in 2000 was so
ridiculous that a half-assed intervention by time-traveling experimental
historians almost seems like a reasonable explanation.

It is interesting, and sad, to think of how much may have ended up hanging on
a couple of hundred Florida voters. Of course, it may be wrong to think that a
Gore presidency would have been all that different.

------
memossy
The most interesting component of this was the healthcare drag in the
revisions taking it down from the initial ones.

While a large element of this was the affordable care act, it is also notable
that healthcare inflation went negative for the first time in 20 odd years
last quarter (education did too, but thats another story).

Given the US currently spends twice the amount of other countries on its
health care as a % of GDP (14%) for similar health outcomes and individuals
are being significantly disincented to spend on healthcare via subsidies and
high deductibles respectively, I think we will see increasing normalisation of
healthcare spend to levels under 10% of GDP, a huge drag on GDP.

This will be further accelerated by smartphone and biometric proliferation
allowing for easier and more reliable diagnosis and treatment choice.

Interesting times.

~~~
rayiner
The healthcare example is a very good illustration of why the GDP calculation
is susceptible to the broken window fallacy:
[http://en.wikipedia.org/wiki/Parable_of_the_broken_window](http://en.wikipedia.org/wiki/Parable_of_the_broken_window).

The root of the problem is that GDP doesn't measure changes in capital stock.
For example, after Fukushima, Japan's GDP ticked up slightly because of the
expenditures from disaster recovery. Obviously it's absurd to conclude that
Fukushima was good for the economy--the loss of capital more than outweighed
the money spent fixing things. The same principle has many different
implications. For example, if we reduced air pollution, expenditures on
treating lung cancer would go down, hurting GDP. Countries that are heavily
based on oil or mineral exports have artificially inflated GDP, because the
measure excludes the decline in the value of reserves.

~~~
bengali3
Interesting point regarding the parable, thank you for sharing.

If GDP does included anything stock, would that really be accurate? Not an
expert, but isn't stock priced on the future value of something (ie dependent
upon future sales forecasts). since GDP is backward looking, i don't think it
should be counted? stock could be used as a predictor of future GDP since the
stock is trying to put a value to future sales.

Also, wouldnt that also double count certain sales? ie each iPhone sold would
increase goods sold as well as the companies stock price?

~~~
rayiner
In this context, "capital stock" just refers to the accumulated wealth of the
country, not shares of a corporation. It's the value of existing bridges, oil
reserves, factories, etc. In the sense I'm using it, I'd even include human
health (i.e. human capital).

~~~
harryh
I seem to recall that in most estimates of the total capital of the US that
human capital vastly exceeds all physical capital.

~~~
rayiner
Interesting, I didn't know that. I guess it makes sense though. This report
puts the value at $738 trillion:
[https://bea.gov/scb/pdf/2010/06%20June/0610_christian.pdf](https://bea.gov/scb/pdf/2010/06%20June/0610_christian.pdf).

------
mikeash
Can anybody who understands this stuff better than I do comment on the winter
weather factor?

To me, the "winter sucked" excuse sounds like complete BS, a transparent lie
along the lines of, "Well, I just didn't _want_ to order the tide to stop
right now." This is a massive change (down a total of 7% or so from two
quarters prior) and surely the weather, while unusual, wasn't _that_ strong.

But maybe it really is a big factor. I'm far from an expert. Can anyone
comment on whether the weather (heh) reasoning is sane?

~~~
gone35
It's not intuitive, but since building sites must halt work during strong
winter days, a large increase in the number of 'snow days' has an outsize
effect on the total output of the construction sector --one of the largest
sectors of the US economy-- during Q1.

This past winter was peculiar in that regard because not only there were more
snowstorms overall than the previous year, but also there were major
snowstorms in regions that seldom see that kind of weather like the South. And
it shows in the figures for residential and commercial building during the
quarter.

These seasonalities however are well understood and don't matter nearly as
much, in part because construction companies often catch up on their delayed
projects during the subsequent quarter. This is one the reasons why reading
too much into annualized quarterly fluctuations can be misleading at times
[1].

[1] [http://jaredbernsteinblog.com/whoa-whassup-with-that-big-
neg...](http://jaredbernsteinblog.com/whoa-whassup-with-that-big-
negative-q1-gdp-revision/)

~~~
mikeash
Interesting point about catching up on work in the subsequent quarter. This
sort of thing is why I thought the impact of weather was overstated, but I
thought that the catchup would have happened during the same quarter. If it
takes just a little bit longer then that would skew things a lot.

Also, I love how I can ask this question and get a ton of quality answers in
quick succession.

------
snake_plissken
Real interest rates are negative and credit is tight. Credit has been tight
for some time, but there is some debate as to when the real interest rate went
below zero. These two factors will cause the US economy to (eventually) shrink
because ~65% of its component parts reflect economic activities based on
consumption. The economy can not expand because dollars that have historically
gone into consumption are being invested into Treasuries. This has the effect
of keeping yields on treasury notes down, which causes real interest rates to
go below zero. A negative real interest rate environment implies investors are
willing to take a small loss if it means they can avoid bigger losses on other
investments.

------
muzz
What does this article have to do with Hacker News?

Note the decidedly different tone from this entry on the same Washington Post
Wonkblog:

[http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/t...](http://www.washingtonpost.com/blogs/wonkblog/wp/2014/06/25/the-
economy-just-had-its-worst-quarter-since-the-great-recession-heres-why-you-
shouldnt-worry/)

~~~
esbranson
Everything and nothing. Nothing to do with computers, everything to do with
hype and name recognition.

Besides, computers are just tools. A means to an end. To the hammer designer,
is a discussion about home building relevant? The economics of home building?
The economics of people buying homes? The psychology of homebuyers? Is
psychology relevant to hammer design? Maybe. Relevance is complicated.

------
joesmo
"Recession-like. It is astounding that we are using any variation of that word
five years into the recovery."

No, it's not. There is little to no recovery. The only surprising thing about
analysis like this is how far the author goes to avoid explicitly stating this
when it's so implicit in the article.

------
maerF0x0
Seems to me the idea of declaring a shrinking economy in terms of $ doesnt
make sense. What if the average price of things is dropping (eg Healthcare)?

To me it seems the goal should just be how much stuff did we make? If that
number went up, then good (except corn).

~~~
jiggy2011
How would you define "stuff" and "make"? Especially with regards to financial
services etc.

~~~
imaginenore
When it comes to the financial services, we can simply measure the cocaine
consumption.

------
sp332
The economy shrank at an _annualized rate_ of 2.9% over one quarter. That's
2.9% / 4 ~= 0.7% in Q1.

~~~
smrtinsert
Could you explain this please?

~~~
jerf
"If every quarter this year was the same as this one, it would be a 2.9%
decline for the year."

sp332 uses the ~= symbols for approximately equal because technically you
can't just divide the percentage by four like that. 2.9%/4 = .725% (exactly),
but technically four quarters at .725% shrink each would produce
100%-((100%-.725%)^4) for the year, which is a 2.869...% decrease, not exactly
2.9%. But for small percents being compounded a small number of times it is a
decent approximation, in this case thoroughly dominated by measurement
inaccuracies and noise levels; the small percentage and the small number of
compoundings work together to keep the error very small.

~~~
sp332
Do you really think it's being compounded like that? I hadn't thought of that.

~~~
jerf
Uh... are you sure you didn't think of that? ;)

Anyways, for the reasons given above, it's indistinguishable. If the economy
was changing rapidly enough for it to matter, well, since it can pretty much
only shrink at sufficient rates to make a difference we'd probably all have
better things to do than argue about compounding correctly...

But it is worth reminding people you can't do than in general, because it is
easy to forget. See also the Rule of 72:
[http://en.wikipedia.org/wiki/Rule_of_72](http://en.wikipedia.org/wiki/Rule_of_72)

------
dang
Since the comments so far have been only about the title, we edited the title
to address these objections.

------
deadfish
Whose economy?

~~~
wutbrodo
The article is from the Washington Post so you can probably assume it's the US
economy.

