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On net, the economy is in recession

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A weekly presentation of downloadable charts and short analyses designed to graphically illustrate important economic issues. Updated every Wednesday.

Snapshot for September 5, 2001.

On net, the economy is in recession
Investment in computers, software, and other types of IT (information technology) played an increasingly important role in the growth of the economy over the 1990s boom. Such investment accounted for 19% of the growth in gross domestic product (GDP) between 1995 and 2000. Yet, as the figure below reveals, the increasing importance of IT has an unrecognized downside: faster depreciation.

Real GDP vs. real NDP: Depreciation ends the recovery

The figure shows quarterly annualized growth rates of real GDP and net domestic product (NDP ) — GDP minus depreciation — over the past few years. The level of NDP is, of course, lower than GDP at any point in time, but until the 1980s these two measures grew at almost exactly the same rate. As computers and software came to be more important in the economy, GDP growth began to exceed NDP growth by between 0.2 and 0.3 percentage points annually.

This gap, however, expanded in the recent boom, as the share of IT software and equipment in total investment grew rapidly. Over the past year, the gap has become quite large, with real NDP down by 0.1% from its year-ago level, while real GDP has grown by 1.2%. In the last quarter, real NDP was solidly in the red, falling by 1.3%, while GDP grew 0.2%. Thus, by this measure, which arguably more accurately reflects the value of goods and services available for use, the economy already appears to be in recession.

This week’s Snapshot by EPI economist Jared Bernstein and EPI research associate and co-director of the Center for Economic Research Dean Baker.

Check out the archive for past Economic Snapshots.


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