The Bureau of Economic Analysis (BEA) reported today that gross domestic product (GDP) –the broadest measure of the nation’s economic activity—grew 1.7 percent in the second quarter of 2013. While much attention will focus on the extensive revisions the BEA made to its methodology for calculating GDP, the essential message of today’s data is the U.S. economy continues to grow far too slowly to work off the excess economic slack that developed over the Great Recession. Over the past year, the U.S. economy has grown just 1.4 percent, a rate far too slow to reliably lower the unemployment going forward if this performance is repeated in the next year.
In his analysis, EPI Research and Policy Director Josh Bivens notes that the revised data does not change the fact that austerity, both at the state and local levels and now at the federal level, has imposed a severe drag on recovery and remains the most obvious cause of economic weakness since the official recovery from the Great Recession began. Since the official recovery began in the middle of 2009, private-sector GDP has risen by 13.2 percent cumulatively, while overall GDP has risen by only 9.0 percent. Had overall GDP not been dragged down by austerity and risen at just the same rate as private-sector GDP, the U.S. economy would have roughly 4 million more people working today, and nearly half of the economy’s jobs gap would be gone. It also should be noted that this is a substantial understatement of the effect of austerity, as it only measures government cutbacks that run through direct government spending. Cutbacks of transfer payments (i.e., reduced unemployment insurance benefits) and tax increases (the expiration of the temporary payroll tax cut) both slow private-sector GDP as well.