Ford Motor Company and Dow Chemical Company are just two of a growing number of Fortune 500 companies that are laying off workers at record rates. Just since September 1st, North American companies have announced they are firing more than 60,000 workers, the biggest drop since the start of 2010 (when the Great Recession was supposed to be in recovery).
The preliminary report on the country’s gross domestic product (GDP) issued on Friday by the Bureau of Economic Analysis (BEA) was called a “nasty October surprise” by James Pethokoukis at the American Enterprise Institute. On its face the report noted that the nation’s economic output during the third quarter exceeded economists’ expectations, growing at an annualized rate of 2 percent when it was expected to grow at only 1.7 percent. This was a significant jump from the second quarter which notched a poor 1.3 percent annualized rate of growth.
But Pethokoukis, an expert at parsing such reports, found little about which to rejoice. For instance, the economy has only averaged 2.2 percent annual growth since the Great Recession officially ended in June 2009 and Friday’s report showed essentially no change from that average. In fact, when this year’s first quarter and second quarter growth rates are averaged, the economy grew at 1.65 percent, triggering the distinct probability, according to Pethokoukis, of another slip into recession.
Relying on data from both the Federal Reserve and Citigroup, Pethokoukis offered three reasons why another recession is likely:
First, consumers are slow to realize that the economy is slowing and modify their behavior belatedly. Second, a fragile slow-growth economy is especially susceptible to outside shocks. Finally,
As the economy slows beyond some threshold growth rate, the decline in growth — in and of itself — undercuts confidence and stokes fears that growth may continue to fall. In response, households and firms tend to cut their expenditures and begin to hunker down. Such dynamics could easily become self-reinforcing and drag growth down further.
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