Could be worse

The Bureau of Economic Analysis reported today that U.S. real GDP grew at an annual rate of 2.5% during the third quarter of 2011. That’s below the average postwar growth rate of 3.2% and well below the 4.3% growth for an average expansion quarter. Even so, it’s better than any of the previous 3 quarters, and better than many analysts had been expecting when the quarter began in July.




Real GDP growth at an annual rate, 1947:Q2-2011:Q3, with dates of U.S. recessions as determined by NBER indicated as shaded regions.



The relatively favorable numbers helped bring the Econbrowser Recession Indicator Index down to 10.3% for 2011:Q2. This is an assessment looking back at the second quarter using today’s reported GDP figures, and is based on growth rates rather than levels. Although this has been a disappointing recovery, it has nonetheless been characterized by ongoing growth rather than contraction.



GDP-based recession indicator index. The plotted value for each date is based solely on information as it would have been publicly available and reported as of one quarter after the indicated date, with 2011:Q2 the last date shown on the graph. Shaded regions represent dates of NBER recessions, which were not used in any way in constructing the index, and which were sometimes not reported until two years after the date.



The growth in 2011:Q3 GDP was led by solid consumer spending and encouraging strength in business purchases of equipment and software, with the latter contributing 1.2 percentage points to the 2.5% total all by itself. An investment- and net export-led recovery would be the ideal scenario, if it can continue. Inventory cutbacks subtracted 1.1%, which means that real final sales registered an encouraging 3.6% annual growth rate and suggests that fourth-quarter GDP growth could be better than the third. Housing remains stuck in its own depression, but since there’s no quarter-to-quarter change, it’s making no contribution, positive or negative, to the observed GDP growth rates. And no, the chart below has not mistakenly omitted the government sector’s contribution to third-quarter growth– the slight increase in federal defense spending was exactly offset by cuts in other categories of federal, state, and local spending, for a net contribution from this sector of exactly zero.







John Silvia of Wells Fargo summed it up nicely:

Modest growth, no recession, still a slow paced recovery but recovery nonetheless.

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15 thoughts on “Could be worse

  1. Steven Kopits

    That’s what the data says.
    Still, the contrast between the recorded growth rate, the stock market, and consumer sentiment in Q3 is pretty marked.

  2. aaron

    I think this is similar to last winter’s bump, when people splurged for Christmas.
    This time I think it is different. People are taking advatage of heavy discounts. Companies are probably clearing inventory. And people are replacing worn out items and doing maintenace before the hard winter coming. And of course, like last year, simple Thrift Fatigue; a breakdown of willpower.
    This is cutting into savings, which are already inadequate, and possibly increacing debt. Expect a bad fourth quarter, unless families with young children splurge again.
    Anyway, these neglected savings and debt increases will need to be payed back. Expect a really bad winter and first quarter.

  3. Bruce

    “An investment- and net export-led recovery would be the ideal scenario, if it can continue.”
    Would it, really?
    Note that the bulk of incremental growth of US “exports” (after agricultural exports) is from US supranational firms’ capital goods “exports” to their subsidiaries and contract producers in China-Asia, the result of which is an increase in Asian production, “exports”, and cross-border movement of components and intermediate and finished goods, i.e., “trade”. (A similar situation exists for Germany’s “exports”, half of which go to neighboring EU countries which are now broke and in recession.)
    About 40% (more at times) of US “exports” return as “imports” of consumer and other goods to the US.
    Most economists laud the acceleration in the rate of growth of US “exports” as evidence of a resurgence in US firms’ “competitiveness” in the world market, which is silly. The phenomenon is the terminal phase of a trend that has been evident for 20-30 years as the US deindustrialized (after US crude oil production peaked in 1970-85) and financialized the US economy, including the “trade” sector (a growing share of gains from “trade” goes to financial firms’ interest and fee income, as well as US supranational non-bank conglomerates earning a larger share of income from financialized flows to and within Asia and elsewhere outside the US).
    Moreover, beginning with the onset of the “Great Recession” (debt-deflationary regime), for the first time in the post-WW II period, US “exports” now exceed fixed private investment (110% today), which, again, is a function of the offshoring phenomenon of the financialized Anglo-American imperial trade regime, not some new era of competitiveness and “export”-led prosperity.
    At the rate of growth of exports to private investment and GDP since the onset of the debt-deflationary regime, “exports” will make up 100% of GDP in as few as 8-9 years.
    IOW, we can offshore the entire US economy in a decade, and economists will be celebrating the process of increasing competitiveness the entire time right up to the day that their jobs are eliminated and they can join the ranks of the cold, wet OWSers protesting against the Saudi and Chinese PLA generals as the new “1%” owners of the “competitive” US economy.

  4. Get Rid of the Fed

    Bruce said: “”An investment- and net export-led recovery would be the ideal scenario, if it can continue.”
    Would it, really?
    Note that the bulk of incremental growth of US “exports” (after agricultural exports) is from US supranational firms’ capital goods “exports” to their subsidiaries and contract producers in China-Asia, the result of which is an increase in Asian production, “exports”, and cross-border movement of components and intermediate and finished goods, i.e., “trade”. (A similar situation exists for Germany’s “exports”, half of which go to neighboring EU countries which are now broke and in recession.)
    About 40% (more at times) of US “exports” return as “imports” of consumer and other goods to the US.
    Most economists laud the acceleration in the rate of growth of US “exports” as evidence of a resurgence in US firms’ “competitiveness” in the world market, which is silly.”

    I don’t have anything to back that up, but it seems to me that is what is happening. In other words, what is good for caterpillar is not necessarily good for the U.S. economy.

  5. Frank in midtown

    What a bunch of nattering nabobs of negativism. Let me try:
    1. GDP is not the only driver of stock market values or consumer sentiment.
    2. Hayek couldn’t sell that buying out of savings is bad for the economy dog. The technical def. of savings is “cash left over to be used by the partial reserve banking system” not “what Americans do to create net-worth.” Consumers aren’t the zombies here.
    3. Dang Bruce, take a chill. Currency pegs are negative carry trades, and are very expensive. The Chinese won’t be able to keep it up any longer than the Japanese could. The development of a viable alternative energy and the Saudi cash pile becomes a rapidly dwindling non-renewable resource. Our industrial rebound has more to do with the change in the price of nat. gas since 2007. Nat. gas is locally priced and in 2007 we had the world’s morst expensive nat. gas at $13 kcf, today we’re back to a very competitive $4 kcf.
    What fun.

  6. Ricardo

    JDH wrote:
    The growth in 2011:Q3 GDP was led by solid consumer spending and encouraging strength in business purchases of equipment and software, with the latter contributing 1.2 percentage points to the 2.5% total all by itself.
    This could be driven by the same mentality that drove auto sales during “cash for clunkers” that is now generally understood as an abject failure.
    At the end of this year 100% bonus depreciation ends, unless congress decides to include it in a future recovery bill which is doubtful. That being the case, businesses are buying all of the capital that they expect to use in the near future this year, so may future purchases are being pulled forward.
    That means that the business purchases in the first quarter of 2012 will be very anemic. It is doubtful that this is the start of a trend. Without this incentive the real growth would probably be lower than 2%, close to what the early part of the year experienced.

  7. Frank in midtown

    Yo Ric, you got a source for your “generally understood”, or you just beggin’ questions again today?

  8. Bruce Hall

    Decades ago, when I was a young man in the Air Force, I visited my grandmother and, while there, showed her slides of some recent trips. After about an hour, I mentioned the man in the slide was my brother. My grandmother excused herself and after a brief trip to her bedroom returned with her glasses… and confirmed in her own mind that it was, indeed, my brother.
    I was taken aback. I asked her why she let me show her slides for an hour if she couldn’t really see them. She responded, “It was better than nothing, dear.”
    For an economy that can’t see it’s way to a full recovery, I guess 2.5% “is better than nothing.”

  9. Bruce

    “Dang Bruce, take a chill. Currency pegs are negative carry trades, and are very expensive. The Chinese won’t be able to keep it up any longer than the Japanese could.”
    Frank, I’m sure you discerned the irony and facetiousness there, just a little?
    Empires have debased their currencies (specie- or digital-based varieties) and coerced tribute from their co-opted imperial clients for millennia, and Anglo-American empire is no different in this regard WRT Japan, China-Asia, Canada, Mexico, Latin America, and parts of Africa and the Middle East.
    The glaring difference today is that Anglo-American empire is truly global unlike Egypt, Babylon, Assyria, Greece, Persia, Rome, Byzantium, the Mongols, China, Spain, Holland, and France, but not unlike our predecessor, the British Empire.
    Therefore, the debt-deflationary fallout and effects of resource constraints will likewise be global, and the scale further implies that the limits to growth this time around will be too many people on a finite, warm, wet rock with only enough resources per capita to support about 10-30% of us at the desired western standard of material consumption indefinitely.
    Get Rid of the Fed, irrespective, that is the “US economy” in all of its deindustrialized, financialized, militarized, and feminized splendor.
    Ricardo, yes, the marked deceleration of growth of “exports”, private fixed investment, and corporate top line revenues and profits is a given for Q4 ’11 and into ’12. $93 Cushing and $110 Brent only ensures it.

  10. Buzzcut

    Gasoline prices are still quite high. If there is any acceleration in economic growth, gas prices are going to go through the roof, driving down economic growth again.
    Look at how well the oil companies did in their Q3 reports. They’re making money hand over fist. Where is the additional capacity needed to grow the economy without spiking gasoline prices? It isn’t there.

  11. Frank in midtown

    Aaron thanks for the link. I’m sorry I can’t translate Austin’s “I don’t think you’d do that short stuff” into Ric’s “abject failure”. Short-term impacts aside, clunkers increased the vehicle parc’s overall mpg, helping keep gasoline prices lower (the decrease in gasoline consumption is less than the increase in fuel efficiency so miles driven are up. I’d link to the EIA here for those points but I’m just not that comment savvy.) It may not have been the intended consequence, but it has been a positive one none the less and far from “abject failure.”

  12. aaron

    MPG improvement is questionable.
    The engines were destroyed, a huge waste.
    The removal of cars from the fleet drives the price of used cars up, hurting the poor.
    It was a subsidy to automakers and upper middle class at the expense of the poor.

  13. The Rage

    Sorry, but Buzzcut, saying gasoline prices are “quite high” is silly.
    Nope, they aren’t. If “gas prices” go through the roof, then they will go down again? Got it?
    Basically the correction came 6 months earlier than my forecast. The question is whether the economy revs up to above trend growth by the end of the year, continues at current levels or drops back down.
    “$93 Cushing and $110 Brent only ensures it”. I gotta laugh at that.

  14. Bruce

    Rage, look at the real GDP yoy going back to after WW II. Each time the yoy rate fell below 2% with a positive growth gap and real wages were contracting yoy, the economy was in or near tipping into recession; we’re already there.
    During each period, the U rate rose 40-100%, S&P 500 earnings fell 35-50%, and stock bear markets occurred with the S&P 500 declining on average 32% and by 35-40% for bear markets during secular bear markets (going back to the 1880s and in Japan since the 1910s).
    With a federal deficit of 13-14% of private GDP and 50-55% of federal receipts, we could see fiscal deficits approaching 100% of receipts during this recession and hereafter.
    The 10-yr. trend of real private GDP per capita continues to contract, reducing real private GDP per capita growth that otherwise would have occurred since ’00 by 26-27%.
    Were the self-similar debt-deflationary slow-motion depression pattern with that of Japan to continue for the rest of the decade as it has since ’00, the US will see a loss of 40-45% or more from real private GDP per capita growth since ’00 that otherwise would have occurred had the long-term trend continued. By any objective measure, this will be a depression, albeit a slow-motion variety.
    China’s unreal estate bubble is bursting, setting up a massive banking and fiscal debt crisis and cascading effect throughout Asia, falling US investment, rapidly decelerating production and exports, business failures, rising urban joblessness, shortages, and social unrest.
    The global stock markets are levitating on hope and delusion, just as was the case in winter ’01, summer ’08, and summer-fall ’73.

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