Saturday, January 29, 2011

U.S. Real GDP Now Above Pre-Recession Level

WSJ -- "U.S. economic output finally regained the level reached before the recession, as growth sped up on stronger consumer spending and exports (see chart above). 

Gross domestic product—a broad measure of all goods and services produced—grew at a 3.2% annual rate in the fourth quarter. That's up from the 2.6% pace notched the quarter before and confirms the view held by many economists and stock-market investors that the economy is gaining enough momentum to start bringing down unemployment in the months ahead.

The expansion in large part was fueled by a jump in consumer spending—a crucial change from earlier in the recovery, when growth relied heavily on businesses investing and building up inventories. Final sales—a measure that gives a feeling for underlying demand in the economy by subtracting the change in business inventories from GDP—notched its biggest increase since 1984, growing 7.1% in the fourth quarter. This reviving demand bodes well for 2011, because businesses could take it as a signal to stock their shelves and hire workers."

23 Comments:

At 1/29/2011 11:48 AM, Blogger juandos said...

Do these people have it wrong?

1) GDP was up an average of 6.4% from the prior peak at this point in the last two cycles, and only 0.2% now.

2) New home sales were up 23% then; down 47% now.

3) Retail sales were up 14% then, 1% now.

4) Industrial production was up 2.5% then, down 5.6% now.

5) Non-farm payroll employment was down 0.1% then, down 5.2% now

6) Personal income was up 11% then, 4% now.

7) New orders for durable goods were up 6.2% then, down 2.2% now.

8) Initial weekly unemployment claims were down 8% then, up 22% now.

 
At 1/29/2011 2:02 PM, Blogger Jason said...

Juandos, I wonder if the real GDP number presented is skewed by the inflation information used.

 
At 1/29/2011 2:40 PM, Blogger Benjamin said...

Die recession, die, die ,die.

I see a strong year ahead; the Fed has the field wide open, and inflation is low. Look for rallies on Wall Street and in property market, and for slow but steady employment growth picking up steam as we go along.

The real worry is that we do a Japan and sink in zero inflation and deflation and perma-recession. Happily, Bernanke was a student of Japan, and knows what to do.

 
At 1/29/2011 3:29 PM, Blogger morganovich said...

jason-

we were talking about that on the GDP thread.

i think that is precisely the issue.

if the gdp deflator and CPI are significantly under reporting inflation (and i believe that they are), then real GDP gets overstated.

we see the truth of this overstatement of GDP in the sort of data that juandos linked to.

if real GDP growth were really this high, we'd see employment gains, which we are clearly not despite the best efforts of the BLS to define the unemployed out of existence. we have the lowest workforce participation in a generation and we still can't get unemployment down. this has been the weakest employment recovery since ww2.

we are not growing, we are just inflating the latest in a string of bubbles and mistaking inflation for growth.

fantastic for me and my business, but tough for the economy overall. this is not a broad recovery, it's more like the 70's except this time we have found a way to call stagflation growth.

 
At 1/29/2011 5:23 PM, Blogger PeakTrader said...

If we had a V-shaped recovery, this would no longer be called the "Great Recession."

It has been a recoverless recovery, because GDP is back to the 2007 level (excluding population growth).

It seems, Obama's "expansionary" fiscal policy offset the Fed's quantitative easing.

We've been burning trillions of dollars spinning our wheels as fast as possible with little or no progress.

 
At 1/29/2011 5:43 PM, Blogger Dr. T said...

Once again, the numbers need to be adjusted for population changes. GDP per person is more relevant than total GDP. The population of the USA increased by 4.4% from 2005 to 2010. Therefore, the GDP per person at the end of 2010 was 4.3% less than it was in 2005.

Our economy is improving, but we aren't even close to a full recovery.

 
At 1/29/2011 6:02 PM, Blogger Jason said...

Morgan, as usual numbers don't appear to matter until they matter.

Not trying to be a conspiracy guy, but I am fairly convinced that the Fed stated purpose for zero interest rates and QE is not its actual purpose. The actual purpose being to better balance trade with China and the rest of the world. So think inflation is really the goal. Essentially forcing out imbalances when diplomacy and other laws and policies cannot or aren't.

Problem is, can they put the genie back in the bottle once things are at bett/more stable point? History is not on the side of the Fed in this regard.

 
At 1/29/2011 6:18 PM, Blogger PeakTrader said...

When you lose 50%, you need to gain 100% for a full recovery.

That's why the Reagan V-shaped recovery had 7% to 9% real growth over five consecutive quarters.

This recovery has taken place at one-third speed, and much of that was from population growth.

 
At 1/29/2011 6:34 PM, Blogger PeakTrader said...

We've averaged zero percent real growth over the past three years.

If we get 4% real growth in 2011, the four year average will be 1%.

 
At 1/29/2011 7:45 PM, Blogger morganovich said...

jason-

i think the real issue with fed policy is that it has lost all independence. the fed is now pretty much run by the president and congress. gone are the days of strong, independent fed presidents like volcker.

this means that the fed is used to drive policy goals. i think the long game has less to do with trade balance than with entitlement spending.

it's clear that the US is in deep trouble on social security and medicare. the unfunded liability there is $50-80tn depending upon who you ask. there is no hope of ever closing that gap.

you couldn't even inflate out from under it because both are pegged to CPI.

this is why greenspan and clinton got together and changed the CPI calculation. now you can inflate out from under the huge unfunded liability because CPI will massively understate actual inflation.

this has the effect of freezing SS and medi spending without making it look like you have. the actual "real" value of those benefits will decline horrifically while the government can claim that they are still keeping up with inflation.

this policy has the side effect of driving incredibly loose money, which is why we have had one bubble or another inflating pretty much nonstop since the late 90's. this has made the bubbles themselves much more pernicious.

an equity bubble funded by cash is easy to clean up. a hard asset bubble funded by debt is VERY difficult.

we now have a fed that only knows one trick: print more money. it's their answer to everyhting, and we are now at a point where it's essentially burning the walls to heat the house.

expect to see more "GDP growth" that fails to drop unemployment or increase standard of living. this is the stagflation of the 70's being mistaken for growth.

 
At 1/29/2011 7:59 PM, Blogger Jason said...

Morgan, no arguments on your analysis. I'm saying that it is also being used to drive the world from an American reserve currency. Bretton Woods II will probably be replaced with some new system in the next 10-20 years, perhaps sooner. Once this happens, the thinking is that American labor will be able to compete again...

...and that is flawed thinking. I think currency imbalances are a small part of the problem. As I've stated before, I think we just don't compete well for jobs anymore.

I fear any supposed gain with this money policy will be for naught and all we will have accomplished is destroying 200 years of accumulated wealth.

 
At 1/29/2011 10:21 PM, Blogger James said...

If the GDP is above pre-recession levels it seems to me that it is a meaningless measure of the economy. Really, given the current condition of the economy, what is the point of such a measurement?

Does there exist a point in time when this, and other leading indicators, having continued to fail us, will be judged wrong or is that asking too much?

 
At 1/30/2011 9:38 AM, Blogger juandos said...

Isn't the GDP number also predicated on understanding what the actual debt is?

Do we know what the real debt actually is?

 
At 1/30/2011 10:21 AM, Blogger morganovich said...

jason-

i'm not sure i understand your argument.

why would we seek to cease being the reserve currency? such a policy would result in a dramatic increase in the interest rates paid on US government debt, an increase we likely could not afford at anything like our current debt loads.

how does ceasing to be a reserve currency aid US labor? one could argue that devaluation makes our exports more competitive, but it also makes all our imports more expensive, yielding a net loss to the US consumer, and we can devalue (and have been) anyway.

i'd be careful with that "we don't compete well anymore" analysis. sure, we could do a large number of things to help, like cut corporate taxes and reduce the regulatory burden of our firms, but the simple fact is that most of the manufacturing jobs we are losing are crappy jobs anyway.

we are losing them not because we cannot compete, but because we have better options. the guy who made your big mac makes more money per hour than the guy who made your iphone. why do we want iphone assembly jobs for which the global going rate is $100 a week?

sure, they are better than being a chinese peasant farmer, but US kinds with paper routes make more than that.

there is really no policy that would keep such a job here which is fine by me, as why on earth would we want it?

 
At 1/31/2011 6:26 AM, Blogger Jet Beagle said...

morganovich: "if real GDP growth were really this high, we'd see employment gains"

These are aggregates. It's possible that high labor productivity industries, such as professional services and petroleum refining, are growing. It's also possible that low labor productivity industries such as construction are not.

If U.S. growth has shifted from labor-intensive to non-labor-intensive industries, couldn't we simultaneously have GDP growth and a reduction in hiring?

 
At 1/31/2011 10:30 AM, Blogger Jet Beagle said...

james: "If the GDP is above pre-recession levels it seems to me that it is a meaningless measure of the economy. Really, given the current condition of the economy, what is the point of such a measurement? "

I don't understand, James. GDP does measure the value-added by operations based in the U.S. Why do you believe it is not a meaningful measure of the economy?

Following recessions, GDP always increases well before unemployment begins to decline meaningfully.

After the 2001 recession, GDP reached an all time high in 1Q2002. But unemployment kept slowly increasing for 15 months after that.

Recovery was slower after the deep 1982 recession. GDP returned to all-time highs by Q21983. Unemployment did not drop below 9% for another five months. Unemployment remained above 7% for two more years.

Is there some condition other than unemployment which you feel is inconsistent with the reported level of GDP?

 
At 1/31/2011 10:30 AM, Blogger morganovich said...

and personal income is still 4% below the previous peak.

http://cr4re.com/charts/charts.html?GDP#category=GDP&chart=RealIncomeLessTransferDec2010.jpg

are we sure this is such great news?

jet-

do you have any evidence that that has happened?

i have some pretty serious doubts that we are seeing productivity gains sufficient to cause 4.4% growth while the workforce participation % stays at the lows for a generation.

 
At 1/31/2011 10:40 AM, Blogger morganovich said...

"Is there some condition other than unemployment which you feel is inconsistent with the reported level of GDP?"

yes. savings. workforce participation. personal income. durable orders. new home sales.

also consider the amount of stimulus money that was spent. that's not growth, it's just borrowing from the future (as it was financed with debt). in spite of the most aggressive government spending since FDR, we have seen the most anemic employment recovery since ww2 and are not seeing personal income bounce as it should. there has not been another recession since ww2 in which personal income was not back to the pre recession peak within a year, whereas we have only made back around 1/3 in 18 months.

 
At 1/31/2011 11:44 AM, Blogger James said...

Jet Beagle: “GDP does measure the value-added by operations based in the U.S”

That is what it is supposed to do and did in the past. I question that is that it continues to be that and the fact of the GDP going above the pre-recession level without increasing employment supports my doubt.

I believe that value-added by foreign labor is getting into the GDP because the way it is measured the government can not at times tell the difference between American value added and foreign value added. An example I have used before is when the Toyota plant in Georgetown, Kentucky installs a starter motor made in Japan in a Camry the value of that starter is counted, by the government, as US manufacturing output. When Boeing starts producing their new Dreamliner I wonder how/if the government is going to account for the foreign content. American labor used to mate the multi-million dollar foreign made wings to a multi-million foreign made fuselage legitimately goes into the US GDP. The value of the wings and fuselage do not. Can the government tell the difference? If not, the GDP no longer tells the same story it used to tell.

 
At 1/31/2011 12:21 PM, Blogger Jet Beagle said...

morganovich: "i have some pretty serious doubts that we are seeing productivity gains sufficient to cause 4.4% growth while the workforce participation % stays at the lows for a generation."

Real U.S. GDP grew 4.5% in 1983 even while unemployment averaged nearly 10 percent. That seems consistent with what we saw in 2010.

I don't understand why workforce participation is a relevant number. We have more Americans living off government checks than ever before. But that has very little to do with the output of the workforce today or three years ago.

 
At 1/31/2011 12:24 PM, Blogger Jet Beagle said...

James: "the fact of the GDP going above the pre-recession level without increasing employment supports my doubt. "

It doesn't support you doubt if you look at historical data. GDP growth always precedes the change in unemployment following a recession. Employers need a few quarters of proof before they take the risk of hiring again.

 
At 1/31/2011 12:28 PM, Blogger Jet Beagle said...

morganovich: "we have seen the most anemic employment recovery since ww2"

I think the employment recovery in the early 1980s was just as slow. Unemployment peaked at 10.8 percent and remained above 7 percent for almost seven years (May1980 to Oct1986).

 
At 1/31/2011 2:05 PM, Blogger Ron H. said...

James,

"An example I have used before is when the Toyota plant in Georgetown, Kentucky installs a starter motor made in Japan in a Camry the value of that starter is counted, by the government, as US manufacturing output."

And, the starter is subtracted from GDP as an imported good, as it should be. Do you have any reason to believe this isn't happening? Do you think the Boeing Dreamliner will be accounted for differently?

I recall that you were also unhappy with the treatment of this product that is counted as 100% imported, so I'm not sure what, other than total US self sufficiency, would please you.

 

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