Tracking GDP and jobs: When repeating the same thing over and over actually provides useful information
Following the release of last week’s report on GDP growth, I wrote the following for a press advisory:
“Gross domestic product grew in the fourth quarter of 2011 at the fastest rate since the first half of 2010 – but any celebration should be muted. The 2.8% growth rate for the quarter was well below expectations and the year-round growth rate for 2011 was only 1.7%, a rate that would not generate reliable declines in unemployment should it continue…”
And the GDP report before that one I wrote*:
“The Bureau of Economic Analysis reported today that the economy grew by 2.5% in the most recent quarter – meaning that it has grown by only 1.6% over the last full year – this sluggish growth is the root cause of the stubbornly high unemployment rate we’ve seen over that time. While a double-dip recession does not seem to be in the cards, this does not by a longshot mean that the economy is healthy.”
And the one before that one I wrote:
“Gross domestic product grew at a 1.3% rate in the second quarter of 2011 and has averaged just 1.6% growth for the entire first half of 2011. This anemic growth is why the unemployment rate stopped falling and actually began rising during these same six months. Worse, the rush to fiscal austerity will make the problems of slow growth and joblessness even worse.”
In short, I’ve been pretty boring over this time in my reactions to subsequent data releases. Take a look at the jobs day releases from my colleague Heidi Shierholz and you’ll see a similar blizzard of same-old-same-old calls that job growth is positive but not fast enough blah blah blah.
But, this week’s update by the Congressional Budget Office of their potential GDP series lets me show why this unvarying string of negativity is actually informative; we just aren’t recovering. The figure below plots the ratio of actual GDP to potential GDP – with potential GDP being the amount of economic output we’d be producing if all workers and factories were fully employed. The gap between these two series (creatively named “the output gap”) is a measure of how far away we are from full recovery. And for the past year or more we have made essentially no progress on this front. Another way to put this is “zero is not the magic number” – GDP (or employment) growth can come in positive forever without actually moving the economy any closer to full recovery. And each month/quarter/year that we do not close the gap between actual and potential GDP is another month/quarter/year that we’re simply leaving hundreds of billions of dollars on the table (cumulatively around $3 trillion and counting since the start of the recession).
So, given this, would writing more unpredictable reactions to each new data release over the past year actually have been informative? Or misleading?
*Note that these “quick takes” were reactions to “advance” estimates of GDP – the growth rates for these quarters have since been revised by BEA.