A flood of press reports has announced the end of the global recession, as economies in Germany and France show GDP growth for 2Q 2009, and the world’s largest economy, U.S., shows the 2nd Q GDP quarter-to-quarter decline was only 1 percent (compare with minus 6.4 percent in Q1). 

These reports are highly misleading. They prove that global managers must go well beyond reading these reports and ‘crunch’ the numbers themselves. A quick trip to the U.S. Bureau of Economic analysis website (www.bea.gov) reveals the composition of America’s GDP decline. The numbers (see below) show the recession is definitely not over.

The data reveal the following:
•  Neither business investment nor personal consumption has achieved positive growth, nor have exports
•  By far the biggest contributor to US economic growth was the decline in imports; this boosts GDP, because imports are deducted from GDP. Imports continued to decline sharply in Q2, because people spend less when they are jobless and impoverished. 
•  The much-touted fiscal stimulus package, which has spilled over $1 trillion into the US economy and created enormous deficits and debt burdens, contributed only 1.1 percent to US GDP growth, and in Q4 2008 and Q1 2009 actually caused GDP to decline. The vaunted ‘cash for clunkers’ program, in which Americans are paid thousands of dollars for trading in old cars to buy new ones, is hard to detect in the numbers. Motor vehicle sales caused GDP to decline in Q2.
•  Inventories continue to decline, meaning that companies are still selling off inventories instead of producing new goods, which reduces GDP. And they still have much more to sell.

To simplify: America’s GDP is falling more slowly mainly because people are too poor and too pessimistic to buy imports. Is that great news? This cannot fuel a recovery, because as is well known, America sent most of its production off-shore, so substituting local production for imports requires bringing home its offshore factories (back-sourcing) — a process that has barely begun.
———————-
United States:   Quarter-to-Quarter % Change in GDP 
                                            2008 Q4                 2009  Q1               2009  Q2
GDP                                  -5.4 %                      – 6.4 %                     -1.0 %
Of which:
Personal consumption        -2.2                          + 0.4                         – 0.9
Gross business investment   -3.9                           – 9.0                          – 2.6
Government consumption   +0.2                          -0.5                          + 1.1
Exports                                  – 2.7                           -4.0                          – 0.8
Imports                                  +3.2                         +6.7                          + 2.2
———————–

A close inspection of French and German data will reveal, I believe, that those countries too are far from out of the woods.