When I was kid there was a comment I dreaded but got too often on too many grade reports to my parents: Not performing up to potential. I hated that. I must say, though, that there times when it did motivate me to do better.
The same comment, not performing up to potential, can easily be applied to the U.S. economy for at least the last 6 years. I really wish it would motivate our economic policymakers to do better, but alas, they seem to be indifferent to the challenges.
For the details of just how much we are under-performing, I give you the Center for Budget Policy Priorities summation of the latest Congressional Budget Agency report on the economy (below the fold):
The Economy Began Growing in Mid-2009
Economic activity as measured by real (inflation-adjusted) gross domestic product (GDP) was contracting sharply when policymakers enacted the financial stabilization bill (TARP) and the American Recovery and Reinvestment Act. The economy began growing in 2009, but the pace of recovery has been modest.
Note: In July 2013, the Bureau of Economic Analysis introduced a comprehensive revision of the national income and product accounts, including important changes to GDP. The new data show a more erratic pattern of growth during the recovery (including a negative quarter in 2011) but the revised average annual growth rate from the second quarter of 2009 to the first quarter of 2013 (2.2 percent) is little different from the previous rate (2.1 percent).
Private Payroll Employment Has Grown For 46 Months
The pace of monthly job losses slowed dramatically soon after President Obama and Congress enacted the Recovery Act in February 2009. The trend in job growth in 2010 was obscured by the rapid ramp-up and subsequent decline in government hiring for the 2010 Census (which is now over), but private employers added 8.2 million jobs to their payrolls in the last 46 months, an average of 178,000 jobs a month. Private employers added 87,000 jobs to their payrolls in December, while a loss of 13,000 cut back total nonfarm payroll gains to 74,000.
Part II: The Recession Put the Economy in a Deep Hole
GDP Fell Far Below What the Economy Was Capable of Producing
In the third quarter of 2013, the demand for goods and services (actual GDP) was roughly $810 billion (about 4.6 percent) less than what the economy was capable of supplying (potential GDP). This large output gap, which is manifested in a high rate of unemployment and substantial idle productive capacity among businesses, is the legacy of the Great Recession. Congressional Budget Office projections show the gap closing slowly over the next several years as actual GDP grows only moderately faster than potential GDP.
GDP grew at a 4.1 percent annual rate in the third quarter. Continued growth of 4 percent or better would be needed to propel the economy back toward full employment more rapidly.
Note: The Congressional Budget Office has not yet revised its estimate of potential GDP to incorporate the comprehensive revisions introduced in July 2013. CBPP has adjusted CBO’s potential GDP estimates to approximate the effect of the revisions.