GDP Growth and Unemployment in the United States, Japan and Germany

November 24, 2009

The first, second, and fourth largest nation-state economies of the world have emerged from deep recession, and each recorded an expansion of real gross domestic product in the third quarter of 2009.  Previous cyclical higher in GDP were reached in the first quarter of 2008 in the German and Japanese cases and in the second quarter of 2008 in the U.S. instance.  From those highs to 3Q09 levels, one discovers substantially larger net output contractions of 6.7% in Japan and 5.6% in Germany than the 3.2% net GDP decline posted by the United States.

Labor markets tell a very different story, however.  Germany’s current jobless rate of 8.1% is only 0.5 percentage points above its prior cyclical low of 7.6% in August-November 2008.  Japanese unemployment of 5.3% lies 1.6% above the low-point of 3.7% in June 2007.  U.S. unemployment, in contrast, has soared 5.8 percentage points from 4.4% in March 2007 to 10.2% at present.  Even if one adjusts for involved job trading and job sharing schemes, the United States labor market took a much bigger relative hit.  The layman’s definition of a recession relies exclusively on the trend in real GDP, that is production of goods and services within a finite period.  The National Bureau of Economic Research rightfully conducts a more rigorous determination of when the U.S. economy is in recession, basing its analysis on five criteria including GDP and the labor market.

Deciding which economies had the severest recession should not be decided simply from comparisons of their respective slides in GDP.  A complete assessment should include multiple economic trends and should look not only at the recession period but also at the properties of the initial recovery stage.  How long, for example, does it take for key economic vital signs to rebound to pre-recession levels?  Ballooning government deficits will be influenced keenly by what happens in the recovery stage of the business cycle.  It may be years before analysts really understand who got hit hardest by the Great Recession.

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

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