However you slice it, a drop from 4.9 percent quarterly GDP growth to 0.6 percent is a bona fide cliff dive. There is now a very strong possibility that economic historians will say a recession began in December 2007, when consumer spending finally began to buckle, unable to stand any more pummeling by the housing bust.
But it’s not yet a done deal. There is some encouraging news on the jobs front, where the service sector is ticking right along, offering some cover to the dwindling band of optimists who think a recession can still be avoided. But pessimists have the heavier artillery on their side. The main component of the slump in GDP was the housing bust — residential fixed investment declined by 24 percent in the fourth quarter of 2007. And there is no evidence yet that the housing bust has hit bottom. The most recent statistics on new home sales, housing starts, and building permits all plumbed depths not seen in at least a decade.
Discussion Questions:
- Where on the business cycle does the US economy appear to be from the article?
- What component of GDP has most contributed to the slowdown in growth? Why has this component slumped?
- What options does the government have to try and turn around the recent decline in growth and the likelihood of a recession.
- What options does the Federal Reserve have for trying to turn the economy around?
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