The Economy Shrinks By 2.9%: Recession Is Now A Statistical Possibility

Yesterday, the Bureau of Economic Analysis announced a shocking contraction of the economy -- as measured by Gross Domestic Product (GDP).  In this latest revision, the economy "shrank" at an annualized rate of 2.9%.  This was the third revision of the first quarter economic activity that was originally predicted to "grow" by 2.5%.

Never in the history of the U.S. has a contraction this large been outside the realm of a full-blown economic recession.  So, it is hard to believe that the second quarter of this year will snap back enough -- growing by at least 3% -- to avoid putting us into the technical definition of recession: Two consecutive quarters of economic contraction.

In this blog, I have predicted that ObamaCare would push us into recession in 2014.  I have also noted that retailers are signalling economic woes for 2014.  And, now, we have some additional evidence that the consumer might have to further pull back on any discretionary spending that would otherwise drive the economy.  In May, consumer prices grew at the highest rate in 15 months at 0.4%.  This despite the fact that wages are stagnant.  More importantly, essential consumables were up even higher.  Electricity rates were up 2.3% in May. Food was up 1/2 of a percent.  And, if the drought continues in the Southwest, food prices will continue to soar.  Further, Obama's crackdown on coal will force electricity providers to further raise rates in order to be compliant with his latest EPA mandates.

The bottom line is that Obama's constant meddling in the economy is now rearing its ugly head in what could be a potential recession.  Things like forcing employers to pay overtime for salaried workers only results in higher costs to consumers and, consequently, consumer's wallets shrink and they can't spend as much on the discretionary items that would otherwise drive our economy.  When someone has to pay more for something they need to live such as electricity, other optional things, like dining out, are cut and the economy starts to contract.

Right now, I just can't see the country avoiding another recession.

References:

U.S. Economy Shrinks by Most in Five Years: Final Revision for 1st-Quarter GDP Shows 2.9% Contraction: http://online.wsj.com/articles/u-s-gdp-contracted-at-2-9-pace-in-first-quarter-1403699600

GDP Disaster: Final Q1 GDP Crashes To -2.9%, Lowest Since 2009, Far Below The Worst Expectations: http://www.zerohedge.com/news/2014-06-25/gdp-disaster-final-q1-gdp-crashes-29-worst-2009-far-below-worst-expectations

Cutting Through The Fog:  Will ObamaCare Push Us Into Another Recession In 2014?: http://cuttingthroughthefog.blogspot.com/2014/01/will-obamacare-push-us-into-another.html

Cutting Through The Fog: Retailers Are Signalling Economic Woes For 2014: http://cuttingthroughthefog.blogspot.com/2014/05/retailers-are-signalling-economic-woes.html

Consumer prices rise sharply in May: http://www.usatoday.com/story/money/business/2014/06/17/consumer-prices-may/10642375/

Weak Wages Pose Threat to Liftoff for Economy: http://online.wsj.com/articles/consumer-spending-fell-0-1-in-april-1401453354

Obama to order businesses to hike overtime pay for salary workers: http://www.washingtontimes.com/news/2014/mar/12/obama-order-businesses-hike-overtime-pay-salary-wo/

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