Picture of a Slog

October 27th, 2011 at 12:01 pm

Real GDP was up 2.5% in the third quarter of the year—a few observations now and more to come:

The macroeconomy is doing better than the microeconomy.  That is, the economy’s growing but the gains of growth are not reaching enough households, who continue to struggle in the weak job market.  That’s because even while the economy is expanding, it’s not doing so fast enough to generate the job growth we need. 

–In fact, 2.5% is considered the trend growth rate in the economy—about the average over a cycle.  The problem is we’re coming off of such a deep recession, we need a bunch of quarters that do much better than average.  In other words, we need a “V”-shaped recovery; we’re getting more of an “L.”

real GDP is finally back to its pre-recession peak, and it’s taken us an historically very long time to get here.  The figure (hat tip, BH) shows the number of quarters it has taken in the past for real GDP growth to regain its prior peak before the recession knocked it down (the top date on the x-axis is the quarter that GDP regained the peak; the bottom date is the prior peak).  The average is 5.2 quarters…this go round, it took 15.   That, my friends, is a long slog.

–Moreover, regaining the peak is just a proximate goal.  What we’ve really lost here is the trillions in output between potential GDP (how the economy would have done absent the recession) and actual GDP.   That’s the actual cost of the downturn—the output, jobs, incomes, opportunities, even careers, that were lost in the Great Recession.

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5 comments in reply to "Picture of a Slog"

  1. Michael says:

    The conservative project for America will be complete when China moves factories here to take advantage of low wages and lax environmental standards.


  2. pjr says:

    GDP is back the the pre-recession level but its composition surely has changed. Are we still collecting 15 percent of GDP in taxes?


  3. Stuart Levine says:

    Jared–A quick question. How many quarters did it take for the GDP to reach pre-recession levels after the onset of the Great Depression?


    • Jared Bernstein says:

      Don’t have quarterly data that far back but peak was in 1929 and it was not regained until 1936, so seven years.


      • Stuart Levine says:

        That would be about 28 quarters. What this indicates that the recovery from the Great Recession was somewhat in line with that under the Depression since the Depression involved a significantly larger drop in GDP. And both the GR and GD were financial recessions, not cyclical recessions.

        I’m not saying that we could not have accelerated the recovery, we surely could have, but, rather, that the time line is not really all that awful by historical standards.


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