What a Difference A Few Hours Makes: Hopeful AP Reporting on GDP Goes Dour, Looks For Excuses

The Associated Press's Jeannine Aversa, who became infamous last year for her stories of "vanishing jobs" that weren't, sounded hopeful early this morning before the release by Uncle Sam's Bureau of Economic Analysis (BEA) of its first-quarter report on Gross Domestic Product (GDP) growth:

Economy's free-fall probably eased in 1Q
The recession's grip on the country may be letting up a bit.

The government is set to release a report Wednesday expected to show the economy shrank at a pace of 5 percent in the first three months of this year. If Wall Street analysts' forecasts' are correct, the figure — while still extremely weak — would be viewed as a hopeful sign that the worst of the recession — in terms of lost economic activity — may be past.

"The recession is easing up," said John Silvia, chief economist at Wachovia. "We're probably bottoming out here in the first half of this year."

..... Many analysts predict the economy will shrink even less in the current April-June period — at a pace of 1 to 2.5 percent. Tax cuts and increased government spending on big public works projects included in President Barack Obama's $787 billion should help bolster economic activity. Analysts hope the economy will actually start to grow again in the final quarter of this year.

Given how unimpressed AP business reporters were during the Bush Economy's 2003-2007 reasonably strong growth period-- even during quarters of 4%-plus growth, it seemed that the economy was always on the brink of recession, regardless of how well it was performing -- Aversa's mild enthusiasm over an anticipated -5% is more than a little hard to take.

But Aversa and her chosen sources consumed crow when the BEA reported at 8:30 a.m. that the quarter's annualized contraction was 6.1%, basically as bad as the fourth quarter of 2008.

Here is how Aversa reversed herself:

The economy shrank at a worse-than-expected 6.1 percent pace at the start of this year as sharp cutbacks by businesses and the biggest drop in U.S. exports in 40 years overwhelmed a rebound in consumer spending.

The Commerce Department's report, released Wednesday, dashed hopes that the recession's grip on the country loosened in the first quarter. Economists surveyed by Thomson Reuters expected a 5 percent annualized decline.

Instead, the economy ended up performing nearly as bad as it had in the final three months of last year ....

In the January-March quarter consumers came back to life, boosting their spending after two straight quarters of reductions. The 2.2 percent growth rate was the strongest in two years.

Much stronger demand for big-ticket "durable" goods, including cars, furniture and household appliances led the increase. That spending rose at a 9.4 pace, the most in a year. Consumers also boosted spending on clothing, shoes, recreation services, medical care, gasoline and other energy products. But not on food, where spending dipped slightly.

Still, the consumer rebound was swamped by heavy spending cuts in virtually every other area.

Businesses cut spending on home building, commercial construction, equipment and software, and inventories of goods.

..... White House spokesman Robert Gibbs called the first-quarter's showing a "pretty severe contraction," but added that some more up-to-date signals on the economy have been more encouraging. "We continue to get, as the president said, some glimmers of hope," he said.

..... Inventory reductions shaved 2.79 percentage points off overall first-quarter economic activity.

However, the recent outbreak of the swine flu, which started out in Mexico and has spread to the United States and elsewhere, poses a new potential danger. If the flu stifles trade and forces consumers to cut back further, those negative forces would worsen the recession.

The first two bolded paragraphs are strong indicators that Aversa's chosen experts underestimated the impact of the massive levels of uncertainty the Obama administration injected into the economy, both during the post-election transition and its first 70 days in power. A short version of a much longer list would include de facto nationalizations; attacks on corporate bonuses; arbitrary TARP decisions, including forcing banks which had money forced on them to keep it; and threats to spread micromanagement of employee compensation to all public [even non-public?] companies, and to all employees.

It's clear that businesses have responded to the uncertainty by further battening down the hatches, reining in spending and keeping inventories (and economic exposure) as low as possible -- a process whose beginning can be traced back to the beginning of what I have been calling The POR (Pelosi-Obama-Reid) Economy (now known as the POR Recession As Normal People Define It) last June.

The third bolded item carries the faint aroma of advance excuse-making.

I would suggest that as long as the heavy-handed intervention and uncertainly continue, any recovery that occurs will come later than it should have, and will be weaker than it should have been.

In fact, this paragraph from Aversa seems to expect that this is what will happen:

The national jobless rate is now at a quarter-century high of 8.5 percent and is expected to hit 10 percent by the end of this year. It will probably rise a bit higher in early 2010 before starting to slowly drift downward.

But earlier, she quotes an analyst, supposedly representing many others with a similar view, saying that "the economy will be entering a recovery by the end of this year."

I would suggest that as long as the heavy-handed intervention and uncertainly continue, any recovery that occurs will come later than it should have, and will be weaker than it should have been.

In other words, instead of the "jobless recovery" George W. Bush's opponents derided earlier this decade, they're predicting that it will be a "job-loss recovery." If so, even if the economy stops being in a recessionas normal people define it, it may and probably should continue to be called a recession as the National Bureau of Economic Research inconsistently and arbitrarily defines it.

Cross-posted at BizzyBlog.com.