Second quarter real GDP was reported to have increased at a 2.4% rate so that the four quarter growth was 3.2%. As the chart shows this is a very weak first year of recovery compared to the old historic norm before the “great moderation” emerged when growth averaged 7.6% in the first year of recovery. But it was stronger than the 2.6% and 1.9%
increase in the weak recoveries of 1991 and 2001.
This leaves real GDP 1.1% below the prior peak in the fourth quarter of 2007. To regain the prior peak in the third quarter real GDP would have to grow at a 4.5% rate. By historic norms this is easily doable, but in today’s world it is unlikely.
Within the data real exports grew at a 14.1% annual rate, about the same as the 14.0% rate in the first quarter. But real imports surged at a 28.8% annual rate compared to a 11.2% rate in the first quarter.
Real final sales to domestic purchasers accelerated to a 4.1% annual rate compared to 1.3% in the first quarter. But because trade was a major negative, real final sales of domestic product only expanded at a 1.1% and 1.3% rate in the first and second quarter, respectively. Domestic stimulus is working, but because of the international leakages it is being dissipated abroad and the economy is not responding. This is the real structural problem the economy is facing and reflects the major hurdle that did not exist before the US started borrowing abroad to live beyond its means in the early 1980s.
And, of dcourse, the job growth associated with that 14% gap also occurred overseas rather than in this country, although I expect that the multinationals did quite well as did the oil exporting countries. Explain again why we should not be wasting stimulus money on alternative energy sources and why “free trade” benefits both countries as opposed to a few corporate elites?
Terry said “It is nothing short of sad how much time you dedicate to denounce science that isn’t really all that fundamentally complicated and ethical decision-making which should be even less complex…”
Because it takes way, way too long to see the growth to be meaningful as a stimulus. Yet, it should be considered as an energy policy for future policy consideration. That is the same reason many of us conservatives advised against over investing in infrastructure.
What bothers me is with the misdirected stimulus have we passed a quick recovery turning point? The FDR-like policies pursued have been successful in recreating the FDR 1930s economic performance. maybe Obama will be accepted as a successful president, similar to FDR, but for that to happen, we will need to see if the FDR, LBJ, Obama and Bush progams survive.
Krugman recently discussed the depression of 1873, which was short lived in the US but rather longer and worse in Great Britian. Then it was US labor surplanting the British mill worker. Today it is China….
In the British end days they declined, aided by military burdens, their empire paid for itself.
Not for the US, its empire is a drain, a huge war profiteering con, in the 21st century things move at light speed.
Look to empire and military occupations for the sire of the deficits.
Terry makes some good points.
It’s also worth stressing again how anemic this so-called recovery is, given the depth of the decline.
GDP growth has been stagnating since Reagan. I’ll say again the so-called great moderation is in fact the great stagnation. There was nothing moderate about the bubble-collapse in housing and the steep decline oin the rest of the economy in recent years.
The lesson of the last year or so is that the stimulus package worked, as much as it could, given that a) it was far, far too small, and b) the portion of it that was in the form of tax cuts was virtually useless. Also, monetary policy is not very effective in a liquidity trap. Krugman has several salient posts on his blog this week.
I have a question about fundamental economics. When Adam Smith was alive, a factory with 10 employees was noteworthy. When Say was alive, the world was in an undersupply of almost all kinds of goods – so to think that supply would create its own demand was a perfectly natural conclusion.
But that was a starkly different world. Is a theory of economics developed around entrepreneurs, who were islands in a largely agrarian society, at all relevant when the biggest and most powerful economic entities are multinational corporations and energy cartels? Do they have the power to skew supply and/or demand on a whim? Does this imply that continuous goverment action (regulatoins, frex.) is a vital component, because no other entity has the size and power to compete?
Let me try this again.
“This is the real structural problem the economy is facing and reflects the major hurdle that did not exist before the US started borrowing abroad to live beyond its means in the early 1980s.”
spencer, I believe that you are adding international trade ideologies where they need not be. Net exports rarely contribute to the early phases of recovery. In fact, since 1948 the average net export contribution during the first four quarters of recovery was positive only following the 1990-1991 recession. (I copied the data below from my excel chart, so the alignment is a bit off.)
48-49 53-54 57-58 60-61 69-70 73-75 80 81-82 90-91 01 07-09 -0.66 -0.24 -0.12 -0.50 -0.30 -0.80 -1.01 -1.58 0.21 -0.87 -0.64
OK, the formatting didn’t work at all. Sorry, but the data comes from here. Rebecca
Monopsony and monopoly seem too large.
Say and Smith (someone tell FOX news) are largely irrelevant. Modern markets are skewed, Smith’s markets require basic liberty which is Concord Mass when Thoreau began criticizing it. It was small market, everyone knows each and respects accumulation. Nothing like that exists today; because of big banks, political influence and USG command economy at 15% (for the discretionary side, which spending and control dwarfs the rest of the OEDC) or more of GDP for “discretionary spend” and the other debasers of liberty: militarism in the form of huge drag on productivity, standing armies.
Skewering SD curves, I suggest yes. The old product life cycle exists very briefly only in mass marketing and only for a short time before other competitiors arrive to cut margins. Who can compete with WalMart? And how long did it take for Kindle/Nook to get to being commodities.
Government action is applied. Now it is for the accumulator few who like in Concord set the agenda, and no one else. Is government necessary? Yes, but it is often to apply the brakes to liberty for central banks, money supply manipulation and standing armies with huge cohorts of unregulated intelligence gathering to keep the occupation of their own country intact.
Yes, government is needed bu their effect is to preserve the property of the ownership class.
The one Krugman sees garnering an ever growing part fo the national wealth.
Agree with jazzb’s observation about the speed of recover relative to the depth of recession. If we look at the increase in output in teh first year relative to the peak-to-trough decline in output during recession, we’ll see that this bounce is weaker than the two most recent “slow” recoveries.
As to trade during recovery, there is a simple little abstraction to keep in mind. The US “marginal propensity to import” is quite high. As a result, if the US and the rest of the world recovery simultaneously from recession, we should expect the US trade gap to widen during recovery. Only if the US lags the rest of the world would we expect the trade gap to narrow during recovery. The pattern is for the US trade gap to narrow during recession, also consistent with the high marginal propensity to import. Even if that abstraction had never been abstracted, just knowing that the trade gap narrowed during recession would make the curious among us wonder if it wouldn’t turn back around during expansion.
I think this expansion will be an interesting test of the ability of net exporters to lead a global expansion. The mechanism seems to offer a strong element of self-limit. It seems to suggest that net exporters cannot lead growth for long.
Rebecca — you are right, good observation. I got the same data you did when I checked.
But on the other hand we started getting the divergence in the ratio of final domestic demand to final sales of domestic product in the early 1980s that generated the trade impact I’m refering to. So the secular trend is there, but it appears to be normal in the first year of recoveries.
Spencer: In general, I agree with your conclusions although I think recovery might be even weaker than what you present.
A few comments on the meaningfulness of the numbers themselves:
1. It is really, really, really difficult to compute GDP in a fashion that stays consistent in good times and bad. For example, a meal purchased at a restaurant is part of GDP, but the imputed value of the same meal prepared at home is not. These discrepancies are well known and pretty much impossible to fix. It’s easy to criticize GDP. It’s hard to figure out how to do it better.
2. Real GDP is worse because it adds uncertainty in inflation computation to the already somewhat hazy GDP number. One major problem in computing inflation is changes in the cost of housing which was probably considerably underestimated in one direction during the boom and underestimated in the other direction during the crash. As with GDP, it’s hard to say how to do it better.
3. A third problem — which unlike the first two — is easily correctable is that in a whole lot of cases where real GDP is used, it would probably be better to use real per capita GDP. Using per capita GDP removes “growth” that is due only to there being more people. When last I looked, failure to correct for population growth has adding a positive biass of around 0.7% to GDP growth every year for decades.
I do not understand your point that failure to account for population growth accounts for 0.7 % of growth.
Care to give a fuller explanation. The data on real GDP per capita is readily available and published with the GDP report by BEA.