“Recent signs that the economic recovery is flagging have introduced a new tension into the bipartisan budget negotiations, giving rise to calls especially from liberals to limit the size of immediate spending cuts or even to provide an additional fiscal stimulus.”
A couple of economists toward the end of the piece, however, suggest that growth is percolating along right now, so no need to do anything more, at least for now. A related point you hear some folks make is that sure, we had a bad jobs month. But the month before was OK, and you shouldn’t lurch based on one bad month.
I agree re the “don’t lurch based on one month” point, but as I show here (see the figure), averaging out, or smoothing, over the past few months doesn’t change the fundamental story. As I noted then, “smooth all you want, fact is that job growth is just too slow to provide working families with the job and income opportunities they need.”
Same with GDP. It has, as economist Doug Holtz-Eakin says at the end of the Times piece, “…been growing for a long time.” For almost two years, in fact. But over the last year the growth rate has averaged 2.3%. That’s just below what economists call the trend growth rate—the basic rate of growth you’d expect to clock in at in the midst of a normal expansion.
But a) we are, sadly, not in that midst, and b) what needs to happen are some solidly above-trend quarters to move the unemployment rate off of its nine percent perch. And regarding point b, the rule of thumb is that for every point real GDP growth is above trend, the unemployment rate falls by around half a point. Stay up a 3.5% for a year, and you should find the jobless rate coming down half a point over that year.
In other words, “the trend is fine, if you’re ok with nine.”