Pethokoukis

CHARTS: The two huge gaps — growth and jobs — that are plaguing the U.S. economy

The U.S. economy has added, roughly, 160,000 jobs a month so far this year, including a gain of 171,000 in October. And GDP expanded at a 2.0% annual rate for the third quarter. None of this data would be considered particularly strong at any time. The job growth numbers about the same as during the Bush jobs recovery 2004-2006, which many economists consider to be a weak one. And GDP growth is less than the 3% level many economists consider to be trend, normal growth.

But those numbers are positively abysmal when you are coming out of a deep recession and trying to make up for those months and years of lost growth and lost jobs since 2006.

First, we have a Growth Gap, assuming annual trend growth of 3%:

As I wrote after the third-quarter GDP report came out;

– The weak report leaves the economy on a growth path far below its potential. This is the “output gap.” (As seen in the above chart.) If the recovery had been stronger, putting growth back on its traditional pace, cumulative GDP over the past five years would have been roughly $10.3 trillion higher.

– Or what if the Obama recovery had been as strong as the Reagan recovery? GDP this year would be $1.5 trillion higher than it is currently.

– Let’s say from here on out, the economy growth at trend, say 3% of so. Because we never had those powerful “catch up” years of above average growth — say, 4% to 7% as in the Reagan recovery — GDP levels will be lower in the future than they would be otherwise. GDP in 2037 will be some $5 trillion lower. And cumulative GDP losses over those years will be close to $100 trillion.

Second, we have a jobs gap, assuming annual private-sector employment growth of 2% (which is what it has been on average the past three decades):

Neither the current pace of economic growth nor the pace of job growth is doing much of anything to close and eliminate the two gaps. We need a period of high economic and job growth to return to those trend lines. And Washington is trying to enable that how, exactly?

 

6 thoughts on “CHARTS: The two huge gaps — growth and jobs — that are plaguing the U.S. economy

  1. There is something else I want to say in response to the first chart.

    So, when the recession first started, the GDP gap was approximately $1 trillion (give or take).

    Between the ARRA, various QEs, and Cash for Clunkers, the government has spent approximately $2.7 trillion. Even if we assume a Keynesian multiplier of 1, the GDP gap should have been covered and then some by now. Instead, the gap is now approximately $1.2 trillion. It would seem, then, that not only does government spending have no multiplicative effect on the economy during this previous recession, it may have even been negative.

    So, for you stimulus folks out there, how can you claim this was a success?

  2. 160,000 jobs a month is misleading. Since June 90% of those jobs were governmental jobs…not private sector jobs. Government jobs are not used in unemployment figures. Reality is the unemployment rate went up…not down. If you factor in the number of people who have stopped looking you’re at 9-10%. If you the account for under employment you’re looking at 16% or more as a true unemployment rate.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>