The extent of the weakness in Q1/14 growth can be appreciated in the above chart. We haven't seen such negative numbers for real and nominal GDP growth without being in a recession. Yet I'm pretty sure we aren't in a recession, since the preponderance of evidence suggests the economy continues to grow, albeit relatively slowly: e.g., business investment is rising, bank lending to business is strong, residential construction is rising, unemployment claims are very low, jobs are growing about 2% per year, industrial production is rising, monetary policy is accommodative, government spending has shrunk meaningfully relative to GDP, the yield curve is positively sloped, and real short-term interest rates are negative, to name just a few. All of these are consistent with an ongoing business cycle expansion. The first quarter weakness was most likely a by-product of terrible weather.
We are very likely still in a recovery, but the problem—as illustrated in the chart above—is that the economy is more than 10% below where it could or should be if long-term growth trends are extrapolated. This is without doubt and by far the weakest recovery in history. I think the reasons for this weak growth are a huge increase in regulatory burdens (e.g., Obamacare), a significant increase in top marginal tax rates, a hugely burdensome, complicated, and distorting tax code, and the developed world's highest corporate tax rates. Accommodative monetary policy is probably a contributing factor as well, since five years of extremely low and negative real short-term interest rates have likely created disincentives to save. In short, the economy has been growing in spite of all the government's "help," not because of it. Lift the burden of a smothering fiscal sector and we'll most likely see a much stronger economy.
Courtesy of CalifiaBeachPundit