There was a certain amount of celebration earlier this week when we found that GDP growth had increased by 0.6%, and thus we were not, technically, in a recession. Sadly, Paul Krugman peered under the hood of that number and didn't return with anything comforting. "It’s not just that final sales fell," he wrote, "so that the economy grew only because of inventory accumulation. If you look at consumer spending, purchases of goods actually fell substantially. Only service purchases rose — and much of that was housing and medical care. As Michael Mandel at Business Week has pointed out, those aren’t 'really' consumer decisions: housing 'consumption' is largely imputed rents on owner-occupied homes, and medical care is mostly paid for by insurance." So, in other words, retailers hadn't sufficiently adapted to the worsening economic situation to cut their inventory orders, and consumers kept spending because that's what you do when you get sick or you have to pay for your house. As Krugman says, "this really does look like an economy at stall speed, not an economy skirting past the edge of recession."
