Carpe Diem

Maybe the private sector is doing fine? Growth in post-recession ‘private GDP’ (3%) is above average


The chart above shows annualized growth rates for: a) the quarterly, non-government, private-sector components of real GDP (personal consumption expenditures, gross private domestic investment, and net exports), see blue bars in chart, and b) the quarterly component of real GDP for “government consumption expenditures and gross investment” (brown bars).

First Trust Portfolios (Brian Wesbury et al.) is the only organization I know that calculates and reports “private real GDP” on a regular basis, here’s their most recent commentary: “We’ve been tracking real “private” GDP (real GDP excluding government purchases), which grew at a 2.2% annual rate in Q2 and is up 3.3% in the past year.”

In the second quarter of 2012, “public sector GDP” decreased -1.44%, and that was the eighth straight quarter of negative growth for total government spending, averaging -2.88% per quarter over the last two years. In contrast, there have been 12 consecutive quarters of positive growth for private sector GDP averaging 3.07% per quarter in the three years since the recession ended, which is slightly higher than the 2.8% average growth rate in private real GDP over the last 25 years.  Most of the decline in government spending over the last few years has come from cuts in defense spending at the federal level, and ongoing cuts in government spending by local and state governments.

So maybe it’s true that the “private sector is doing fine” and most of the sub-par economic growth measured by real GDP is simply reflecting the decreases in government spending, and not weakness in the private sector?  In that case, maybe the sub-par recovery has some positive effects of shrinking government?  And why don’t more economists, analysts, and reporters calculate and report private- and public-sector economic growth separately?

Comments welcome.

Update: See related post by Catherine Rampell at Economix Blog, “‘Big Government’ Isn’t So Big by Historical Standards. It’s Also Shrinking.”

6 thoughts on “Maybe the private sector is doing fine? Growth in post-recession ‘private GDP’ (3%) is above average

  1. The problem is that even if you present hard facts and statistics to the right-wingers, they won’t follow. Either because they mentally can’t, or because they are just haters.

    • No the problem is the ‘dead cat bounce’. Early in the chart, growth was slowing like a rocket reaching apogee. After the ‘big dump’, growth had no where to go but up. So comparing recent private sector growth to an average – particularly an average that is reduced by the ‘big dump’ and 9/11 negatives – is worthless. Well, OK, it’s apparently enough to convince liberals that everything is fine. But you have to ask yourself: Does the sprinter accelerate more in the first 20 yards or the last 20? The answer is pretty clear.

  2. Does this mean that instead of coming up with number s and then shopping conservative “think tanks” to see who will rubber stamp it we have what? Are these economists who want a future other than Liberty University? Who stood up here against the billions of the Koch brothers? I did hear rumblings they tried to takeover a nonpartisan entity. Someone got his big boy pants today.

  3. I think the comments reflect a misunderstanding of what the chart shows. Yes, a reduction in government spending will lead to a reduction in GDP because GDP includes government spending, so if the GDP number is all you are concerned with then all you have to do is increase government spending. This does not help the economy or lead to actual growth in wealth though.
    What the chart shows is a rather inverse correlation between government spending and private sector GDP growth. That is wealth is created when government spending is reduced.

    • Correlation is not causation. Examine the GDP components from the 50s and 60s; you will discover that the government share of GDP was increasing, yet wealth was also being created.

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