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.