Sunday, January 30, 2011


The recovery is over! It ended during the fourth quarter of last year when real GDP exceeded the previous record high during Q4-2007. From that peak, real GDP plunged 4.1% through Q2-2009. Since then, it has recovered 4.5%. The economy is transitioning from the recovery phase to the expansion phase of the business cycle. Growth should be more self-sustaining as the pace of employment quickens. So there should be less need for stimulative fiscal and monetary policies.

State and local spending has been flat for the past decade following a 33% increase during the 1990s. It is likely to be the weakest component of GDP this year, and could also weigh on consumer spending. That’s because these governments are running out of federal stimulus money and will have no choice but to reduce their payrolls, especially after July 1 when their fiscal years begin.

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