Whenever the government releases data like that recently which showed GDP increasing 2.8% it later revises it as more information becomes available. So the problem goes back several years. Turns out - no surprise to any sentient human being - the 2007-2009 financial crisis and recession were much worse than anyone realized - or was willing to admit at the time.
That means that the financial hole the economy is attempting to clamber out of is much deeper which, in turn, means that the rate of growth has to much higher to return to whatever normal might be. Or that it is going to take longer. 2.8% is better than the alternative. And following a 'normal' recession might be really good news. But the problems this economy faces are of a more serious nature. Many of them are systemic, which means big problems have to be fixed - like the root causes of income inequality.
Government stimulation would help, but powerful forces in the US and Europe are pushing austerity. This means reduced government spending at a time when it is most needed. This is unlikely to hurt those who feel this way but it will delay or derail a recovery.
One might argue that the government spending cutters should be careful what they wish for (the leaders of the UK and France along with the US Republican party being particularly prime examples)but until voting results dethrone them this warning is unlikely to change their beliefs or actions. JL
Brad Plumer reports in the Washington Post:
The U.S. economy grew at a 2.8 percent annual rate in the last quarter of 2011, according to Commerce Department data. That’s a little below expectations, but it also signals what most people already knew — the United States ended last year on a modestly upbeat note. (To put this in perspective, GDP grew at a paltry 0.7 percent in the first half of 2011.) On the other hand, it’s not fast enough growth to make a sizeable dent in unemployment. Here are five things to note in the GDP figures:
1. At this pace, unemployment won’t fall significantly. Ever since the financial crisis hit, “real GDP” (what the economy is actually producing) has been lagging way below “potential GDP” (what the economy could be producing, given our existing workforce and resources). That means the country needs some catch-up growth to get back to full employment. Dave Altig, senior vice president and research director at the Atlanta Fed, drew up a chart showing how much growth we’d need to get back to close the output gap. If the United States grows at just a 3 percent rate, it will take until 2020 to get back to full employment:
2. The winter growth was powered by auto sales. Much of the GDP growth was buoyed by 14.8 percent growth in the sales of automobiles and other durable goods. This is consistent with economist Karl Smith’s theory, explained by Matt Yglesias here, that an economic recovery is around the corner given that people have held back on purchasing cars and other manufactured goods during the slump, those goods are depreciating, and more people are getting ready to replace them now that the credit situation has improved. “Part of the forecast for improvement is that there’s a lot of pent-up demand in things like autos,” says Ben Herzon, an economist at Macroeconomic Advisers.
3. Government spending cuts are biting into economic growth. Government spending contracted a whopping 7.3 percent in the fourth quarter of 2011 — led by big cutbacks in defense spending. Had it not been for these cutbacks, the data suggest, growth in the last quarter would have been 3.7 percent. That’s the difference between “okay” growth and “good” catch-up growth that would make a meaningful dent in the jobless rate. It’s also a reminder that Congress can very much affect what happens in 2012 — especially since lawmakers still haven’t extended the payroll tax holiday or expanded unemployment insurance for the full year.
4. There are indications that growth will slow next quarter. Whenever digging into the details of the GDP figures, it’s worth looking for signs that the growth will sustain itself. For instance, it’s a good sign that personal spending on goods and services went up 2 percent last quarter, but not such a good sign that real disposable income is growing very slowly (at a low 0.8 percent rate). Likewise, a good chunk of the growth was due to businesses building up their inventories, which could herald a slowdown in production next quarter. (Most forecasters seem to be predicting a slight dip in the first quarter of 2012 at this point.)
5. These GDP figures always get revised. The current GDP numbers are just a first-pass estimate. These numbers will get revised at least twice in the months ahead. Sometimes they get revised very significantly (for instance, it took three years for the Bureau of Economic Analysis to figure out that the recession in the winter of 2008-2009 was much, much, much worse than anyone knew
0 comments:
Post a Comment