Today we got the final GDP numbers for Q4 2007, and to the relief of many, including the stock markets where futures rallied on the data, we did not enter a recession during Q4 (if one sticks with the typical definition of negative GDP growth). Instead, we saw a significantly slower growth number, 0.6%, than we had in Q3, 4.9%, but it should be considered that Q1 2007 also posted only 0.6% growth. We spent the next two quarters booming in real terms.
The obvious takeaway is that GDP growth fluctuates like the wind blows, and a slowdown is nothing to be afraid of or cry over. In fact, a list of the last 12 quarters of GDP growth shows exactly these back-and-forth swings I'm talking about; starting with Q1 2005 and going to Q4 2007: 3.7, 2.8, 4.4, 1.1, 4.8, 2.4, 1, 2, 0.6, 3.8, 4.9, 0.6. Now obviously the Q4 number can't speak for the Q1 2008 number (which we'll get our first look at on April 30), but a 0.6% rather than something with a "-" in front does put to rest all the talk that we entered a recession late in 2007 with the awful jobs data from December. This was the view espoused by Nouriel Roubini, Jim Cramer, and a few others who have correctly predicted 10-out-of-the-last-2 recessions.
Jobless claims were also solid today and PCE (personal consumption expenditures) were higher than some expected. Both contributed to the rally in stock futures.
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I think making a comparison between Q1 2007 and Q4 2007 is risky because at that point in time housing prices were not nearly as depressed as they are now which has resulted in a significant decline of wealth in our country. The numbers don't tell the entire story, so we are not out of the woods yet. Brian Westbury made some great points about low tax rates and an easy Fed helping the economy weather tough times in the video you posted, but what happens when the Fed doesn't cut anymore of cuts below what the futures are indicating. There is a lot of pessimism out there and something very small could trigger a lot of downside when everybody jumps on the bandwagon.
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