Pethokoukis, Economics, U.S. Economy

Has Washington severed the US economy’s roots?

Image Credit: shutterstock

Image Credit: shutterstock

The last three months of 2013 were not as strong as first thought. The Commerce Department now says real fourth-quarter US GDP was up 2.4%, not 3.2% as first estimated. For the year, then, RGDP was up 2.5% (fourth quarter over fourth quarter) vs. 2.0% in 2102. Some explanation from Paul Ashworth of Capitol Economics:

 … Federal government shutdown resulted in a 5.6% drop in public sector spending, which subtracted more than 1.0% ppts from overall GDP growth. Durable goods consumption is now estimated to have increased by a more modest 2.5% in the fourth quarter, down from the initial 5.9% estimate. …  Net exports are now assumed to have added 1.0% ppt to GDP growth, rather than the initial contribution of 1.3%. Inventories added 0.1%, down from the initial 0.4% estimate. The good news is that business investment increased by 7.3%, revised up from the initial estimate of a 3.8% gain. That gain helped to offset an 8.7% decline in residential investment, which was hit by the drop back in existing home sales that has reduced brokers’ commissions.

Still not so bad given a year of tax-heavy fiscal austerity, But not great either. So as we move forward through this fifth full year of an anemic recovery/expansion after the Great Recession, where do things stand? A new Congressional Budget Office blog post offers two key stats from its calculations:

1. CBO estimates that GDP was 7½% smaller than potential (maximum sustainable) GDP at the end of the recession; by the end of 2013, less than one-half of that gap had been closed.

2. Employment at the end of 2013 was about 6 million jobs short of where it would be if the unemployment rate had returned to its prerecession level and if the participation rate had risen to the level it would have attained without the current cyclical weakness.

A ways to go before we return to the old normal. Of course 2014 was supposed to be a year of acceleration, one that may have slipped on the ice thanks to a severe winter. Spring cannot come to soon. As Chance the gardener put it in the film, Being There:

In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again. As long as the roots are not severed, all is well. And all will be well in the garden. There will be growth in the spring!

Follow James Pethokoukis on Twitter at @JimPethokoukis, and AEIdeas at @AEIdeas.

 

26 thoughts on “Has Washington severed the US economy’s roots?

  1. The year 2102 would make Mr P into a futurist. Or, is this when he believes the Obama stagnation finally ends? Or, ObamaCare is rescinded?

    Calendar year 2013 GDP was an anemic 1.9%, with 2014 promising even less of the same. If CPI was 1.2% in 2013, that means economic growth was close to lacking a pulse.

  2. To stretch the analogy, no, but the soid is poisoned and a transplant is needed.

    The removal of QE will crush what little heartbeat is left requiring a massive economic reorientation that will hurt to the bone.

    Can the debt ever be repaid or even re-placed into a reasonable level? Can the dollar be saved?

    Doubtful.

  3. The way we measure unemployment is obsolete and it very much understates modern unemployment. For example, a woman who earned an MBA, was formerly a junior executive earning $120K/year, was unemployed for a year, and is now working as a sales clerk at Crate and Barrel for $24K/year is 80% unemployed. Yet we measure her as fully employed because she works a 40 hour week.

    Further, her former colleagues who all saw what happened to this young woman are all too frightened to leave their current jobs despite cuts in salary and much worse working conditions. They are all 10% to 20% unemployed. Yet they too are also measured as fully employed.

    Somewhere around 50% to 70% of our workforce falls within one of these two categories. Among young people, I would guess that the figure approaches 100%. Yet national policy makers walk around acting as if we have experienced an economic recovery akin to recoveries in post-war U.S. economic history.

    Once policy-makers understand the magnitude of the economic misery that our population is suffering through, I suspect there would be sufficient political will to do something about our horribly mismanaged national economy.

    A better measure would be to add up all of the wages paid to our national workforce in 2007, multiply that number by inflation and population growth and then compare that number to wages actually paid in the current year. I suspect that

  4. The way we measure unemployment is obsolete and it very much understates modern unemployment. For example, a woman who earned an MBA, was formerly a junior executive earning $120K/year, was unemployed for a year, and is now working as a sales clerk at Crate and Barrel for $24K/year is 80% unemployed. Yet we measure her as fully employed because she works a 40 hour week.

    Further, her former colleagues who all saw what happened to this young woman are all too frightened to leave their current jobs despite cuts in salary and much worse working conditions. They are all 10% to 20% unemployed. Yet they too are also measured as fully employed.

    Somewhere around 50% to 70% of our workforce falls within one of these two categories. Among young people, I would guess that the figure approaches 100%. Yet national policy makers walk around acting as if we have experienced an economic recovery akin to recoveries in post-war U.S. economic history.

    Once policy-makers understand the magnitude of the economic misery that our population is suffering through, I suspect there would be sufficient political will to do something about our horribly mismanaged national economy.

    A better measure would be to add up all of the wages paid to our national workforce in 2007, multiply that number by inflation and population growth and then compare that number to wages actually paid in the current year. I suspect that would show a real unemployment rate of somewhere around 25%.

    • An interesting point , to which I might add all the older men I see stocking shelves at Home Depot . From my interaction with them , I would hazard to guess they once had jobs with some greater substance . I think embedded in the 7.3% missing GDP is the underutilization of this human capital .

      • I know many people in their 50′s unemployed or underemployed, some living off the equity in their homes. And consider what will happen when we cut food stamps. Once we have soup lines again, the reality of our economic condition will be hard to ignore.

    • What of the labor participation rate? An associate of mine attributes most of the decline in participation to the retirement of the Baby Boomer generation which, he says, neither Party could have done anything about. Fine, I answer, (not having contrary statistics at hand) but is all of that decline due to retirements or is some of it due to other, policy-related, factors? He asserts that *any* concern about labor participation rates is misplaced. Well?

  5. The roots were not severed. We transplanted the entire garden to Asia to cut labor costs and boost short term profits. Now we are a desert.

    • Not really.

      We created incentives for that to happen, and also created massive obstacles and barriers to entry for replacement jobs (small business).

      We also created incentives for offshoring capital as well.

      It should surprise no one that we are where we are right now, given our massively stupid policies and actions.

      • I know that we created incentives. That is why it happened. Now we should create different incentives. But you have to understand the problem before you can fix it.

        • That is highly unlikely given the institutional composition and inertia of current government, as well as the hyperactivist and leftist agenda of most legislators.

          Pile on the coming entitlement bomb, and we are in enormous trouble, possibly more than Japan and Europe.

          Economic ignorance has destroyed the country.

  6. Unwilling to be deterred by economic reality , far too many of our elected “policymakers” are still attempting to export middle-class American STEM workers’ jobs to cheaper foreign H-1B, L-1 and OPT workers… as GUESTS of our country under the guise of “imiigration reform”.

    These greedy and corrupt “representatives” (on BOTH political sides of the aisle) don’t deserve to breathe the same air as the rest of us !

      • Ironically, black employment rates are sky-high under a president they adore, even though he courts hispanic/asian votes by bringing in workers who take away the jobs of black men.

    • Cut federal spending and the Fed buying our debt and the economy will crash hard overnight. Nobody should want that. We need to focus on sustainable private sector jobs to create taxpayers. Look at where the jobs went and bring them back.

  7. “Still not so bad given a year of tax-heavy fiscal austerity, But not great either.” Deficit spending of around $800 Billion
    is austerity? Government spending needs to slashed, entitlements reformed NOW, and interest rates need to be allowed to rise to market rates. We need a small crash now to get things re-aligned or we will have a much bigger crash coming soon and another great depression.

    • Glad you’re not in charge. You would cause another Great Depression overnight. We need Americans working and paying taxes. Your plan would do the opposite. Probably followed by violent revolution.

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