It is hard to say that we entered a recession in the first quarter, without a single negative growth quarter, let alone two of them.   Even so, three minor qualifications to that 0.9% remain: 
1)      The number will be revised again, and could move in either direction.
2)      A bit of the measured growth consisted of an increased rate of inventory investment, which was almost certainly not desired by firms and is likely to reverse in the 2^nd quarter
3)      As Martin Feldstein has pointed out, the QI growth number is defined as the change for the quarter as a whole relative to QIV of 2007;  within QI, the information currently available suggests that GDP fell from January to February to March.

 

The economy is a four-engine airplane flying at stall speed, skimming along the top of the waves without yet going down.   Real gross domestic purchases increased only 0.1 percent in the first quarter.   But exports provided an important source of demand for US products, and are likely to remain a positive engine of growth in the future.   The same is true of the fiscal policy engine, as consumers receive and spend their tax cuts in the 2^nd and 3^rd quarters.   On the other wing, the investment engine has been knocked out;  inventory investment is likely to fall and residential construction will remain negative for sometime.   The big question mark is the consumption engine.   Is the long-spending American household taking a hard look at its diminished net worth and taking steps to raise its saving rate above the very low levels of recent years?

We are already clearly in a “growth recession…

A fascinating story behind the fallout of Bear Stearns, featured on WSJ.

Part One
Part Two
Part Three

Jim Hamilton, the renowned econometrician and an expert on oil price prediction came out with this research paper. I recommend all who are interested in the issue should read the whole paper.

He listed three theories for current high oil prices:

1. storage arbitrage (the investory story)
2. index future speculators (the speculation story)
3. the recent feature of scarcity (the limited supply story)

Here are some really nice charts from his research (click to enlarge, hat tip to Jim Hamilton):

RONALD REAGAN once described inflation as being “as violent as a mugger, as frightening as an armed robber and as deadly as a hit-man”.

 

In countries such as China, India, Indonesia and Saudi Arabia even the often dodgy official statistics show prices have risen by 8-10% over the past year; in Russia the rate is over 14%; in Argentina the true figure is 23% and in Venezuela it is 29%. If you measure the numbers correctly, two-thirds of the world's population will probably suffer double-digit rates of inflation this summer.

 

 

 

 

"[Commodities] are experiencing demand shock from a new category of speculators: institutional investors like corporate and government pension funds, university endowments, and sovereign wealth funds," said Michael Masters, managing member of Masters Capital Management, a Virgin Islands-based hedge fund. "Index speculators are the primary cause of the recent price spikes in commodities."

…Masters distinguished between traditional speculators and what he calls index speculators, or passive investors who enter the commodities markets as a long-term hedge against inflation. Commodities exchanges limit the number of positions an investor can take in the market, but Masters says the Commodity Futures Trading Commission has allowed unlimited speculation in these markets through a loophole.

Speculative activity in commodity markets has grown dramatically over the last several years. In the past decade, the share of long interests—positions that benefit when prices rise—held by financial speculators has grown from one-quarter to two-thirds of the commodity market. In only five years, from 2003 to 2008, investment in index funds tied to commodities has grown twentyfold, from $13 billion to $260 billion.