Not a recession?

The economy grew at a pace of just under 1.0% in the first quarter of this year. While this is not a cause for celebration, it is growth and the very definition of recession requires that the economy is contracting instead of expanding. Even consumer spending grew an anemic 0.2% last month. Therefore, regardless of the fact that Warren Buffet says that we are in a recession already, the statistics do not yet show this fact. What if we do not fall into a recession?

Well, a recession would mean that rates stay low and the Federal Reserve Board is focused on stimulating the economy. Low growth puts the Fed focus on inflation first as we have entered into a period of "stagflation." We have already seen rates rising to reflect this difference. While there may be only 1.0% difference in growth rates between one and the other, the economic remedies and market reaction can differ significantly. Since the housing sector is the weakest within the economy, this sector needs lower rates as part of the stimulus package.

On the other hand, don't get mesmerized by the numbers. Warren Buffet could very well be right. An important segment of growth in the first quarter was due to a lower trade gap and this was fueled by a lower level of imports. We import less when our consumption goes down. Even consumer spending did not grow when inflation was taken into account. So there is room for the economy to slide further and this may reduce upward pressure on rates.                  San Diego California Realtors