GDP Growth Returns
Growth is back: “Gross domestic product expanded at an annual rate of 3.5 percent in the three months ending in September, a significant spike from a relatively shrunken base. The economy had contracted at annual rates of 0.7 percent and 6.4 percent in the first and second quarters of this year, respectively.”
3.5 percent is solid growth. But given the prolonged period of increasing unemployment, the growth of the population during that period, the ongoing growth of the population, and increases in productivity, you’d have to sustain growth at that level for quite a few quarters before the labor market returns to good health. Another way of looking at it is that given the high unemployment rate and the recent contraction in output we should be able to sustain a period of abnormally high “catch-up” growth without sparking any inflation at all.
The key question going forward is will policymakers continue with growth policies until unemployment falls and wages are growing, or will they give in to demands from coupon-clippers and goldbugs to put the breaks on?
15 Responses to “GDP Growth Returns”
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October 29th, 2009 at 9:20 am
will they give in to demands from coupon-clippers and goldbugs to put the breaks on?
If your woman steps out with another man
(That’s the breaks that’s the breaks)
And she runs off with him to Japan
And the IRS says they want to chat
And you can’t explain why you claimed your cat
And Ma Bell sends you a whopping bill
With eighteen phone calls to Brazil
And you borrowed money from the mob
And yesterday you lost your job
Well, these are the breaks
October 29th, 2009 at 9:23 am
Mentioning population growth in this context reminds me of something I’ve wondered for a long time: Why do we define a recession as contraction in GDP rather than a contraction in per capita GDP?
October 29th, 2009 at 9:40 am
The Fed has a dual mandate. It is to keep inflation low and maintain maximum employment.
How are they doing?
October 29th, 2009 at 9:57 am
A lot of this is from temporary inventory restocking and stimulus. As mentioned on CR today, we will probably see some more of this for Q4, but the prospects for 2010 look very, very bad. There is absolutely no reason to believe that any of these GDP numbers will translate to jobs.
And that is not all. Foreclosures are still rising, and everyone is starting to clue in that we are in a false bottom for housing right now (goosed by stimulus, housing credit, and continuing fantasies that we can return to 10% annual appreciation). The CRE situation is even worse.
October 29th, 2009 at 10:01 am
Funny – the recession ended (at least technically) and on Monday my best friend started a great new job after being laid off for a few months.
From this little corner of the world – things are indeed looking up.
October 29th, 2009 at 10:11 am
Just because you spot me in a fancy restaurant doesn’t mean I’ve started paying off my maxed out Amex. It just means Visa was dumb enough send me a new card. Party on.
October 29th, 2009 at 10:12 am
Why do we define a recession as contraction in GDP rather than a contraction in per capita GDP?
We don’t, really. The NBER dates the beginning and end of recessions with a fairly comprehensive approach, and it is really only the punditocracy that promotes this idea that GDP is the one and only measure.
That said, population growth is slow enough that it usually isn’t going to make much difference for dating purposes whether you are looking at changes in GDP in gross or per capita.
As mentioned on CR today, we will probably see some more of this for Q4, but the prospects for 2010 look very, very bad.
Calculated Risk is assuming a poor recovery in both unstimulated consumer spending and residential investment. That may well be true, but it remains to be seen–I personally think the former at least may recover a little faster than Calculated Risk is assuming right now.
Meanwhile, exports could also continue to contribute more to the recovery than in typical prior cases. For good or ill, we actually share in any major stimulus efforts going on elsewhere in the world through this mechanism.
All told, I think it is fairer to say that the rate of recovery in 2010 is just very uncertain right now, as opposed to it necessarily looking bad.
October 29th, 2009 at 10:54 am
Joe Lieberman is now deprived of his argument that we should not move forward in HCR too quickly because the economy is in a recession.
October 29th, 2009 at 11:15 am
Joe Lieberman is now deprived of his argument that we should not move forward in HCR too quickly because the economy is in a recession.
No he isn’t. Unless he mistakenly makes an appearance on the Maddow show.
October 29th, 2009 at 12:28 pm
[...] Matthew Yglesias: Growth is back: “Gross domestic product expanded at an annual rate of 3.5 percent in the three months ending in September, a significant spike from a relatively shrunken base. The economy had contracted at annual rates of 0.7 percent and 6.4 percent in the first and second quarters of this year, respectively.” [...]
October 29th, 2009 at 12:30 pm
None of the above. The GOP will take the House in 2010, declare it a victory for Ronald Reagan, eliminate all taxes for the top 1%, and fund a project to get F-22’s to land on the moon.
October 29th, 2009 at 12:31 pm
The real question is how far the recovery will get before the hit the petroleum ceiling. That is when increased oil demands creates an oil price spike big enough to choke off growth. With oil already around $80, we don’t have far to go before this happens.
October 29th, 2009 at 3:26 pm
Current oil prices have nothing to do with actual demand. It’s just another Wall Street speculative bubble.
October 29th, 2009 at 5:25 pm
Mike S @3 says:
Well?
October 30th, 2009 at 9:04 am
[...] Matthew Yglesias | Growth is back: “Gross domestic product expanded at an annual rate of 3.5 percent in the three months ending in September, a significant spike from a relatively shrunken base. The economy had contracted at annual rates of 0.7 percent and 6.4 percent in the first and second quarters of this year, respectively.” 3.5 percent is solid growth. But given the prolonged period of increasing unemployment, the growth of the population during that period, the ongoing growth of the population, and increases in productivity, you’d have to sustain growth at that level for quite a few quarters before the labor market returns to good health. Another way of looking at it is that given the high unemployment rate and the recent contraction in output we should be able to sustain a period of abnormally high “catch-up” growth without sparking any inflation at all. The key question going forward is will policymakers continue with growth policies until unemployment falls and wages are growing, or will they give in to demands from coupon-clippers and goldbugs to put the breaks on? [...]