A VW recession?

Regular readers of this blog were well-prepared for the news that GDP grew at an almost respectable 1.9% pace in the second quarter (or at least was estimated to grow at that pace on the basis of incomplete data and possibly suspect assumptions). But the really interesting information in the GDP release was that Q4 2007 growth was revised downward to negative 0.2%.

There's been a some talk already about a possible W recession, in which the economy turns down, turns up, and turns down again before beginning a sustainable recovery. That's what happened in 2001, and as I've pointed out before, there's something almost cute about a man known as W presiding over two W recessions (I don't know that it's possible to have an H- or S-shaped recession, which may be good sign for the next 4-8 years). There are also those who figure this year's GDP numbers will eventually be revised downward to the point that posterity will see this as just one long recession.

But here's my exciting new theory, inspired in part by the news that GDP was shrinking as long ago as late last year: Maybe this will be a VW recession, or even a WW, in which the economy skids along for a year or two, alternating between modest growth and slight shrinkage. In olden days, recessions were sharp and unmistakable. So were the recoveries. That was the product of a manufacturing-dominated economy, relatively inflexible wages, and primitive inventory-management systems, among other things. Now we've got a much more flexible economy, as Alan Greenspan liked to tell us all the time. But we've also got big-time financial imbalances (the current account deficit, low savings rates, etc.) that have only just begun to correct. We're better at rolling with the punches, but there are a lot of punches still headed our way. Encouraging, eh?