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business newsThe Road to Recovery: Are We There Yet?
A look at the most recent data on second-quarter US GDP and a very serious and growing problem for our state and local governments.
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-- Friedrich August von Hayek, Nobel Speech 1974
Those of us who have taken young children on long road trips are familiar with the plaintive question, "Are we there yet?" As a nation and indeed the developed world, it’s not unreasonable to be asking, "Are we there yet?" about the road to recovery. The NBER, those self-appointed economists who are the official keepers of the score sheet of recessions and recoveries, have yet to tell us we’re out of recession. Yet the economy is growing. Kind of.
Today we look at the most recent data on second-quarter US GDP, and even though it’s backward-looking data, we'll see what we can discern that might help us chart the direction of the future. And then I'll highlight what is a very serious and growing problem for our state and local governments. Are We There Yet?
The economy of the US grew at a weaker-than-expected 2.4% in the second quarter, but the first quarter was revised back up to 3.7% on the strength of stronger-than-projected inventory rebuilding. But the recession years were revised downward rather significantly for this late in the cycle. We find now that the recession was worse than we thought, taking the economy down a total of 4.1% during the recession. As of today, we’re not quite back to where we started, still down 1%. That means it’s quite possible that we could finish the year and still not be "there yet." (To see a 1% rise in GDP we would need to see a 2% annualized rise for the rest of the year. We'll look at that possibility in a few paragraphs.)
Let's look at a few charts courtesy of the Dismal Scientist, at www.economy.com. First, recent GDP numbers:
If this were an average recovery, the economy would be growing at a 6% rate at this point, which pretty much says it all about our current 2.4% number. Further, 2.5 years after the beginning of a recession, we’re typically already 8% higher than the prior high. This is a very tepid recovery, indeed.
Now, let's look at the actual numbers.
There’s a category called "Final Real Sales" you can create by subtracting the inventories number from the real GDP number. That reveals that final real sales grew by 1.3% last quarter. This is against what’s normally a 4% number this far into a recovery. Is it any wonder that small businesses are asking "When will we get there?"
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