Thursday, April 17, 2008

Will the American economy hit a recession?

Unfortunately it looks like contraction has already begun. We just can't confirm that yet because data analysis of gross domestic product (GDP) is notoriously slow. We do know that the fourth quarter of 2007 saw growth nearly stall out at .6%, down from 4.9% the previous quarter. And we know that the IMF projects the US economy to crawl along at .5% in 2008 and .6% in 2009.

These are just estimates, of course, but they provide a nice reminder: In the time being we still have to piece together a picture of reality. A good place to start is the financial world. How likely is it for lending and investing to pick up? Yesterday, in a company statement following a 50% drop in first quarter earnings, JP Morgan Chase Chairman and CEO Jamie Dimon offered this to fill our curiosity and stoke our concerns:

Our expectation is for the economic environment to continue to be weak and for the capital markets to remain under stress. These factors have affected, and are likely to continue to negatively impact our firm's credit losses, overall business volumes and earnings -- possibly through the remainder of the year, or longer.

Not the most reassuring words. Bottom line estimation: the US economy is in a recession. Companies are facing hard times, financial companies are facing especially hard times, and the GDP data will soon confirm all that. The key questions then will be, what will it take to whether it? And what will it take to get out of it?

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