This forum has argued for a while that the US recession started in Q1 of 2008 and that this long and protracted U-shaped recession (lasting 12 to 18 months as opposed to the consensus for a short and shallow 6 months V-shaped recession) could turn into a double-dip recession because $100 billion of tax rebates would be a temporary drug that would boost consumption in Q2. Indeed, the figures published today – a 1.9% GDP growth in Q2 – confirm this W-shaped path.

More importantly the revisions of 2005-2008 GDP figures now show that the economic recession may have started in Q4 of 2007 – rather than Q1 of 2008 – as GDP contracted at the annualized rate of 0.2% in that quarter. While Q1 of 2008 was positive (+0.9%) it is clear that the economy was already into a recession in Q1. The reason why the recession started in Q4 of 2007 or – at the latest in Q1 of 2008 – are clear. Let me elaborate them…