Economic Snapshot | Wages, Incomes, and Wealth

Current recovery great for profits, poor by most other measures

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Snapshot for April 4, 2007.

Current recovery great for profits, poor by most other measures

by L. Josh Bivens 

Recent data regarding fourth quarter (2006) growth in U.S. gross domestic product (GDP) allows us to examine how the current recovery, now entering its fifth year, stacks up against the other recoveries since World War II that lasted as long. This assessment can shed light on the effectiveness of macroeconomic policies enacted in the name of improving economic growth.

How does this recovery stack up?

This much is clear: the current recovery substantially lags the historical average in GDP growth, employment growth, investment in equipment and software, and, with the deflating housing market, even in residential investment.

Conversely, corporate profit growth in the current recovery (despite a 3% dip in the last quarter of 2006) has been almost twice as rapid as in the past.

In short, the current recovery looks weak on all measures except profit growth. As a policy lesson, the large tax cuts of 2001 and 2003, which have had ample time to affect the economy by now, have failed to deliver economic performance that even matches up to the past average.

Source: Author’s calculations from data taken from the Bureau of Economic Analysis (BEA), National Income and Product Accounts (NIPA), and the Bureau of Labor Statistics (BLS).

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