U.S. GDP Growth and Unemployment Insurance Claims

August 27, 2009

U.S. GDP growth last quarter was not revised downward despite a deeper inventory run-off because of offsetting upward revisions to real private domestic demand.  A return positive growth in 3Q09 of more than 2.0% remains on track, which is the good news.  A long term view of growth is less promising: the trend is toward slower GDP expansion in spite of faster gains in productivity.

  • Real GDP rose 4.0% per annum between end-1949 and end-1974, that is the third quadrant of the last century.
  • Real GDP expanded at a 3.3% annual rate in the final 25 years of the century to 4Q99.
  • The Y2K scare was a dud, but a period of even slower growth ensued.  GDP rose 2.4% per annum from 4Q99 to mid-2005.
  • In the four years from mid-2005 to mid-2009, real GDP on net increased just 0.6% per annum, demonstrating the devastating setback of the last four quarters over which GDP tumbled 3.9%.  Between 2Q08 and 2Q09, residential investment, non-residential business spending, and exports plunged by 25.5%, 20.0%, and 15.2%.  Personal consumption fell 1.8%.  Only a 2.4% rise in government spending was positive, but an 18.6% drop in imports mitigated the drop in GDP.
  • From mid-2005 to mid-2009, residential investment tumbled 18.3% per annum.  Non-residential investment growth was also negative at minus 1.1% per annum, and personal consumption increased on average by just 1.0% per annum.  Exports and imports each expanded 2.1% per annum.  A 3.5% per annum drop in imports highlights the real economic benefits of a more competitive dollar following extensive depreciation.
  • Most economists anticipate that sub-trend growth will continue in coming years. Recessions caused by dysfunctional financial sectors tend to produce fragile upturns.  High household debt and unemployment will continue to constrain personal consumption.  I look for growth during the coming four years of less than 3.0% per annum and probably not even as much as 2.5% per annum.

When currency market participants take account of economic growth prospects, the focus looks generally at which economies are likely to expand more rapidly, with a presumption that associated currencies should perform best.  However, such cyclical comparisons fail to take due regard of the long-term trend in each economy.  The long and continuing decline in the average trend of U.S. economic growth explains the long-term depreciation of the dollar over the past 40-50 years better than do relative economic growth rates at each point in the business cycle.

New jobless claims are a gauge of layoffs.  They peaked in the week of March 28th at 674K and on a four-week moving average basis in period covering March 8 – April 4 at 657.75K.  Recessions tend to end soon after new jobless claims start to move lower.  But employment usually shrinks and the jobless rate continues to crest while new jobless claims are running above 400K.  It is very rare for claims to get as high as they did early this spring, and that means they have to improve significantly before the labor market feels better.  This delay is being stretched further by the very slow rate of decrease in new unemployment claims, which were at 570K last week and averaged 566.25K over the last four reported weeks.  This second figure was in fact above the 560.25K pace in the previous four weeks to July 25.  Previous sequential four-week averages of new jobless claims totaled 618K in the period to June 27, 632.25K in weeks to May 30, and 624.25K in the period to May 2nd.  All outstanding jobless claims still exceed 6.1 million people despite the fact that benefits have now expired for many workers.  That total is down from 6.9 million in the week to June 27th and remains 1.65 million (or 36.7%) greater than at the start of 2009.  The exhaustion of benefits will exert a fresh drag on personal consumption going forward.  Nobody said the exit strategy was going to be easy.

Copyright Larry Greenberg 2009.  All rights reserved.  No secondary distribution without express permission.

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