Saturday, August 30, 2008

Revised GDP data and recesssion

You might not have seen the news, but the Commerce Department revised its GDP numbers for the second quarter of 2008, and the revised numbers say that the real economy grew at a 3.3% rate. These new numbers should drop the fears of recession, but the story is so ingrained in the media that it probably will not.

It has, however, dropped the value of the bet on recession on the intrade prediction market. In early 2008, the market said that the probability of a recession in 2008 was almost 80%. It is now down to less than 20%. The bid and ask prices are far apart, at 10 and 17, so it does not appear that there is much trading.

I do not remember where it was, but I read recently that the reason that the economic problems were getting so much publicity was that it was affecting the financial economists, the big money guys on Wall Street. Perhaps. I have not really seen any evidence of slowdown in this part of rural Indiana. We did not have a housing bubble, so there was no bubble to burst. The construction industry seems to be doing OK. The effect of gas prices, though, was noticeable. There were fewer cars (but probably not trucks) on the highways and interstates, and there were more scooters, bikes, and motorcycles on the roads this summer, and a lot fewer RVs. But those were the results of high gas prices, not recession.

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