U.S. GDP — Some Observations

July 27, 2012

Economic growth in 2Q12 of 1.5% annualized was very close to expectations.  A 1.5% advance in personal consumption was its weakest pace in a year, and government expenditures (down 1.4%) fell for the eighth consecutive quarter.  The drag from net foreign demand and boost from inventory building exactly offset one another last quarter, while nonresidential and residential investment together enhanced GDP growth by three-quarters of a percentage point.

U.S. GDP growth in the dozen years between 2Q00 and 2Q12 averaged 1.6% per annum.  That pace was less than half the 3.4% annualized expansion rate over the twenty prior years through mid-2000 and the 3.6% rate for the twenty years between 2Q60 and 2Q80.  The dozen years since the second quarter of 2000 can be subdivided into four periods.  From mid-2000 through the third quarter of 2001, a span that surrounds a mild recession, the U.S. economy only rose 0.6% at an annualized rate.  Over the ensuing 6-1/4 years to 4Q07, growth averaged 2.6% per annum.  Then in the 18 months of the Great Recession through mid-2009, GDP contracted at an annualized 3.2% rate.  Finally during the three years of ensuing recovery, the average growth rate has been 2.2%, which matches the on-year advance between 2Q11 and 2Q12. 

An interval of twelve years is sufficiently long to conclude that U.S. potential GDP growth with non-accelerating inflation has fallen substantially from norms experienced in the second half of the twentieth century. These dozen years included two recession, the second of which was the most severe since the 1930s.  Equally noteworthy, periods of recovery and expansion have been much slower than such segments of the business cycle prior to mid-2000. 

A quirky characteristic of the last three years between the mid-2009 end of the Great Recession and the second quarter of 2012 has developed a pattern of stronger second halves each calendar year than first halves.  U.S. GDP climbed 2.7% annualized in 2H09, 2.5% in 2H10, and 2.7% in the second half of last year.  But during the first halves, GDP rose at annualized rates of 2.3% in 2010, 1.3% in 2011, and 1.7% in 2012. 

The personal consumption price deflator reflects continuing benign inflation.  Such increased just 0.7% annualized last quarter and at a pace of just 1.4% over the three quarters since last September.  The U.S. economy has lately experienced less inflation and lower unemployment than the euro area.

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



Comments are closed.