Trends of past recessions. Commentary of interest about past recessions and the durations.
Not Out Of The Woods
Although it is increasingly likely that GDP will be up in the first quarter following a small rise in the fourth, we believe that the recession is not over. (Please see yesterday’s comment). Contrary to general perceptions, positive quarterly GDP numbers in the midst of a recession is not at all unusual, and has, in fact, occurred during six of the last eight recessions.
In the 1949 recession GDP was down in the first, second and fourth quarters, but was up 4.6% in the third. During the 1957-1958 downturn GDP was off in the second and fourth quarters of 1957 and the first quarter of 1958. The third quarter of 1957, however, rose 4%. Although GDP was negative in the second and fourth quarters of 1960, it was a positive 0.7% in the third. In the 1969-1970 setback GDP fell in the fourth quarter of 1969 and the first and fourth quarters of 1970. In between, the GDP climbed for two straight quarters—by 0.8% in the second and 3.5% in the third.
Continuing the pattern, GDP showed negative growth in the third quarter of 1973 and the first, third and fourth of 1974. During the recession GDP grew in two discontinuous quarters, by 3.4% in the fourth of 1973 and 1.1% in the second of 1974. Once again GDP declined in the second and fourth quarters of 1981 and the first and third of 1982. In between, GDP climbed 4.8% in the third of 1981 and 1.7% in the second of 1982.
For reasons mentioned in previous comments, including yesterday’s, we believe any growth occurring in the current and last quarters is unlikely to be sustained and that the economy is not out of recession. The 1995-2000 boom was a classic bubble that was shattered by the collapse of the dot-coms, a drastic fall in revenues for almost every technology company and the largest decline in S&P 500 profits in at least 52 years. The economy is still burdened with severe imbalances such as excessive capacity, record debt levels, a low consumer savings rate and significant trade deficit. We also note that the average trough P/E ratio of the S&P 500 for the six recessions mentioned above was 11.5 compared to 29 times a liberal estimate of 2002 earnings. |
