GDP 4th Quarter 2010

The numbers for the flash estimate are out today from BEA for U.S. GDP growth, 4th quarter 2010.  I’ll let Calculated Risk summarize the headlines:

Advance Report: Real Annualized GDP Grew at 3.2% in Q4

by CalculatedRisk on 1/28/2011 08:30:00 AM

From the BEA:

Real gross domestic product — the output of goods and services produced by labor and property located in the United States — increased at an annual rate of 3.2 percent in the fourth quarter of 2010, (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis.

GDP Growth Rateby CalculatedRisk on 1/28/2011 08:30:00 AM Click on graph for larger image in graph gallery.

This graph shows the quarterly GDP growth (at an annual rate) for the last 30 years. The dashed line is the median growth rate of 3.05%. Growth in Q4 at 3.2% annualized was slightly above trend growth – weak for a recovery, especially with all the slack in the system.

A few observations:

  1. The non-recovery recovery continues.  As I explained earlier, economists haven’t properly defined “recovery”. We define a recession as reduction in GDP (actually a bit more complicated, but close). But we use “recovery” to describe any period after a recession ends.  It’s kind of like a man jumps of a tall building and once he hits the ground and stops falling, we say he must be “recovering” since he isn’t falling.  What appears to be happening is that we are resuming a “normal” growth rate (what’s normal for the last 30 years), but we aren’t really recovering from the recession. Instead, it’s probably better to describe things as those who survived the recession are continuing as they were before, but the 10 million or so unemployed and closed businesses are just out of luck.  They’re out of the picture and we’re moving on without them.
  2. GDP growth in 4th quarter would have been stronger except that businesses had a significant draw-down in inventory.  The inventory draw down surprised me a bit, I’m not sure what it indicates.  We’ll have to wait for the revision to maybe get a better idea. It could be a harbinger of better growth in 1st quarter if businesses seek to replenish that inventory.
  3. We’re still underachieving. It’s gonna be a long time getting back. Technically we have only now gotten real GDP back to a level it was at the end of 2007, the beginning of the recession. But, of course, the economy should have been growing at 2.5-3% per year for these last 3 years.  So the gap between what we are actually producing and what we should be capable of producing continues to be large – on the order of 7-8% of potential GDP. Gee, maybe that’s what those millions of unemployed workers could be used to produce!

3 thoughts on “GDP 4th Quarter 2010

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