The incredible 3% drop in GDP can't be blamed on the cold weather

The Obama administration suggests that it was unusually cold weather that explains the drop, but looking it is hard to see any relationship between abnormally low temperatures and GDP growth.

Click on figures to enlarge them.

US GDP growth falling farther and farther behind trend as the Obama recovery continues

Click on figure to make it larger.

With the final measure of GDP growth during the first quarter of 2013 just being released (2.6%), I thought that I would graph out how GDP growth has preformed during the Obama "recovery."  As economists know, during previous recoveries GDP growth grows much faster than the trend growth rate until GDP growth catches back up to trend.  This is the first recovery where that isn't the case.  As you can see from the above figure, GDP growth in the current recovery keeps growing more slowly than the trend rate.  

Real GDP increased by only a paltry 1.9 percent in 2013.  It was down from the already weak 2.8 percent in 2012.

Dramatic diagram: Pathetic GDP growth, first recovery to be falling further and further behind trend GDP

This has the latest update to the GDP numbers.  Click on figure to make larger.

Will it be the third quarter of 2013 before GDP gets back to pre-recession level?

From the WSJ.  Note that to even get to the third quarter of next year there is the assumption that GDP growth will accelerate.  The assumption for that isn't clear.

Median income for Americans has fallen by 4.1% below what it was when he became president

The percent of Americans in poverty and without health insurance remains higher than when Obama became president and income for the median American keeps falling.  From the Financial Times:

The median income of American households dropped to its lowest level since 1995 last year, extending its decline during President Barack Obama’s tenure and highlighting the depth of the damage to the middle class inflicted by the recession and weak recovery.

According to annual data from the Census Bureau, median income adjusted for inflation – a closely watched measure of the financial health of average Americans – fell to $50,054 in 2011, or 1.5 per cent below its 2010 level and 4.1 per cent below its score when Mr Obama took office in 2009.

Although real median income had already started to slide beginning in 2008, before Mr Obama entered the White House, the fact that he was not able to reverse that downward trend could expose him to criticism from Mitt Romney, his rival, that his policies have not aided the middle class. In addition to the drop in overall median income, the data also showed a rise in income inequality last year. . . .

Per capita GDP still below what it was in December 2007

From the WSJ:

Over that same stretch, the U.S. population grew 3.7%. As a result, GDP per capita is still 1.9% below its 2007 high mark. Assume that Wall Street economists’ GDP forecasts and Census Bureau population projections are in the right ballpark, and GDP per capita doesn’t look like it will surpass its old peak until the third quarter of 2013. . . .

The GDP data are available here. I had made a very similar point previously here.

The lost last four years

Later figures show that the drop, particularly for median net worth, has occurred since 2007.

Pew Research Center has gotten a lot of attention for this, but they term it as the "Lost Decade."  With median net worth, it is pretty clear that it is just the last four years.

The Wall Street Journal summarizes the dilemma here:

The income of the typical American family—long the envy of much of the world—has dropped for the third year in a row and is now roughly where it was in 1996 when adjusted for inflation.
The income of a household considered to be at the statistical middle fell 2.3% to an inflation-adjusted $49,445 in 2010, which is 7.1% below its 1999 peak, the Census Bureau said. . . .
Earnings of the typical man who works full-time year round fell, and are lower—adjusted for inflation—than in 1978. Earnings for women, meanwhile, are a relative bright spot: Median incomes have been rising in recent years and rose again last year, though women still make 77 cents for every dollar earned by comparably employed men.
The fraction of Americans living in poverty clicked up to 15.1% of the population, and 22% of children are now living below the poverty line, the biggest percentage since 1993. . . .

Updated GDP numbers show that the recovery has been even slower than first thought

The Department of Commerce has revised GDP data.  The new data is available here and the older data is available here.  The net change from the adjustment during the recovery is -1.5 percentage points.

From the WSJ:

From the second quarter of 2009, when the recession ended, through 2011, the economy grew a total of 5.8%, a downward revision from a 6.2% gain, the recasting of the past three years’ gross domestic product figures found. Only the brief 4-quarter recovery in 1980 and 1981, when the economy grew a total of 4.4%, was weaker in the past 60 years. . . .

Does one really want to call the 1980 and 1981 recovery a recovery? Don't you really want to compare the same lengths of time?


See this useful discussion of events by Jim Glassman here at Forbes available here.


Here is also an useful figure from Economy Watch.

Merrill Lynch predicts 2Q GDP at horrid 1.1% annual rate

Calculated Risk has this from Merrill Lynch:

Today’s weak retail sales report leaves Q2 GDP tracking a meager 1.1%. We expect the economy to remain weak through the rest of the year with growth of only 1.3% in Q3 and 1.0% in Q4. This translates to GDP growth of only 1.3% Q4/Q4, significantly below the Fed’s forecast of 1.9-2.4%.

Lower sales, higher inventories, falling interest rates, all point to a slowing economy. From Reuters:

U.S. retail sales fell in June for the third straight month, the longest run of consecutive drops since 2008 when the country was mired in recession. Sales slipped 0.5 percent, with declines across a wide swath of industries from electronics and cars to building supplies, the Commerce Department said on Monday. Analysts had expected a small increase. "Evidence is increasingly clear that the U.S. economy is slowing," said Jim Baird, an investment strategist at Plante Moran Financial Advisors in Kalamazoo, Michigan. The report adds to a spate of soft economic data that is raising pressure on President Barack Obama ahead of his November re-election bid. Republican challenger Mitt Romney is focusing his campaign on the weak economy, which has plagued Obama's presidency. The dollar declined against the euro and the yield on 10-year U.S. government bonds dropped to an all-time low as the data stoked worries the economy was floundering and could need more help from the Federal Reserve. U.S. stock prices san k. . . .

The JP Morgan forecast is here.

This morning we lowered our tracking of Q2 GDP growth from 1.7% to 1.4%. For some time now we have noted that our Q3 GDP call — which was already below consensus at 2.0% — had risks that were skewed to the downside. . . .

UPDATE: Economists Expect Growth in Second Quarter Was Weak 1.2%

Economists surveyed by Dow Jones Newswires expect real GDP to have grown at an annual rate of just 1.2% last quarter, down from the tepid 1.9% in the first quarter. The expected rate would be the slowest growth since 0.4% posted in the first quarter of 2011. . . .

UPDATE: Computer sales keep dropping.

"For the first time since 2001, client PC shipments have declined sequentially for three consecutive quarters-and have been below historical averages for the last seven quarters," AMD CEO Rory Read said during the chip supplier's second quarter earnings conference call. . . .

Changing economic position of different countries

Look at the growth in China's economy since they moved away from communism.  Russia's economy has stopped its decline since its move. The relatively freest market countries make up most of the world's GDP.

Austerity and Economic Growth: Keynesianism didn't work so well in Europe

Paul Krugman told MSNBC: 

“We have actually had a massive unethical human experiment in austerity doctrine.  Here we have had this view that cutting government spending is going to be good for the economy even when the economy is deeply depressed and we have put it into effect in large parts of Europe and we have put it into effect to a significant effect in the US . . . . And the results have been exactly what someone like me said that they would be, which is there has been a very depressing effect on the economy.  Where is the evidence that this other view is at all right?”

Unfortunately, it looks as if Romney is inconsistent with his views on government spending, though it is possible to rationalize this quote by saying that changing spending will temporarily create frictional unemployment. From an interview in Time Magazine:

Halperin: I want to get to a lot of those, and let’s go to spending, which is a big thing for you, one of the bases of comparison – you say you’d cut spending a lot more than the President has.  And like most governors I know, you can get down in the detail.  A lot of people don’t know that about you; you can really get your arms around a policy issue and go deep, so let’s talk about spending.  You have a plan, as you said, over a number of years, to reduce spending dramatically.  Why not in the first year, if you’re elected — why not in 2013, go all the way and propose the kind of budget with spending restraints, that you’d like to see after four years in office?  Why not do it more quickly? 

Romney: Well because, if you take a trillion dollars for instance, out of the first year of the federal budget, that would shrink GDP over 5%.  That is by definition throwing us into recession or depression.  So I’m not going to do that, of course.  What you do is you make adjustments on a basis that show, in the first year, actions that over time get you to a balanced budget.  So I’m not saying I’m going to come up with ideas five or ten years from now that get us to a balanced budget.  Instead I’m going to take action immediately by eliminating programs like Obamacare, which become more and more expensive down the road – by eliminating them, we get to a balanced budget.  And I’d do it in a way that does not have a huge reduction in the first year, but instead has an increasing reduction as time goes on, and given the growth of the economy, you don’t have a reduction in the overall scale of the GDP.  I don’t want to have us go into a recession in order to balance the budget.  I’d like to have us have high rates of growth at the same time we bring down federal spending, on, if you will, a ramp that’s affordable, but that does not cause us to enter into a economic decline. . . . 

Germany's economy grew at a 2 percent rate in the

So much for Krugman's predictions about Germany and their austerity policy. From the Financial Times:

The German economy grew five times faster than expected in the first quarter of the year, jumping 0.5 per cent. . . . The year on year increase was 1.7 per cent, beating expectations of a 0.8 per cent jump, and the German statistics office said growth was supported by an increase in net trade as exports to outside the eurozone gained. But this is still more a tale of divergence than cheer as French GDP came in flat and the Netherlands GDP fell 0.2 per cent as the country remained in technical recession. And while German’s performance could be the basis for a beat (with Austria providing some more support after it found 0.2 per cent growth in the first quarter), eurozone GDP is predicted to fall 0.2 per cent with the data due later this morning. . . .

Was real GDP growth in the first quarter even less than 2.2%?

The Consumer Metrics Institute has this discussion:

Once again the BEA has used "deflaters" that will strain the credibility of the public, especially if they buy gasoline. To correct the "nominal" data into "real" numbers the BEA assumed that the annualized inflation rate during 1Q-2012 was 1.54%. As a reminder, lower "deflaters" cause the reported "real" growth rates to increase -- and once again very low seasonally adjusted BEA inflation "deflaters" have been the headline number's best friend. If the raw "nominal" numbers were instead "deflated" by using the seasonally corrected CPI-U calculated by the Bureau of Labor Statistics (BLS) for the same time period, nearly the entire headline growth rate vanishes -- and the resulting growth rate would have been a minuscule 0.08% with "real final sales" contracting.
And real per capita disposable income actually shrank during the quarter -- even using the BEA's optimistic "deflaters." Real-world households likely felt the pinch even more. . . .

Looking at the previous recessions can you spot the slowest recovery?

From the WSJ.
Remember Democrats coming to the defense of Obama's economic projections by saying that the worse the recession the stronger the recovery?

Also, only 28% of Americans think that the economy is getting better.

The Rasmussen Consumer Index, which measures the economic confidence of consumers on a daily basis, rose slightly on Thursday to 79.2. Consumer confidence is down two points from a week ago and shows little change from a month ago, but is up 13 points from three months ago. Consumer confidence is down 10 points from a year ago. Over the course of 2011, the Rasmussen Consumer Index ranged from a low of 58.1 to a high of 93.3. So far in 2012, consumer confidence has ranged from a low of 78.7 and a high of 89.4. . . .

My Newest Fox News Piece: Yes, the Economy Is Growing But Obama's Policies Are Not Helping

My newest piece at Fox News starts this way:

The economy grew slightly faster during the third quarter. But the newly released numbers mean that for the year GDP has only grown at an incredibly slow 1.4 percent, barely keeping pace with population growth.  The change in per capita GDP so far this year is essentially zero.

Normally the more severe the recession, the faster is the recovery.  During the Reagan administration, for same three quarters, GDP grew at 4.8 percent.  Since the Obama recovery started in June 2009, GDP growth has averaged 2.5 percent, compared to 6 percent over the same time period under Reagan.  The quarterly growth rates for the two recoveries are available here. 

Obviously, more people working would result in more income.  The slow GDP growth is tied to the continued record high unemployment. Unemployment has remained at least at 9 percent for 27 months and counting, a post World War II record.  While the unemployment rate during the recession in the early 1980s went higher, reaching 10.8 percent, the high rates did not last as long, staying above 9 percent for a relatively short 19 months. . . . 

GDP Growth During Reagan and Obama Recoveries

The first estimate for the 3rd quarter of 2011 is available here. So far this year GDP growth has only been 1.4 percent. During the same period during the Reagan recovery, the annual rate of GDP growth was 4.77 percent. The two periods of time are from the beginning of 1983 to the beginning of 1985 and from the third quarter of 2009 to now.

GDP growth remaining very slow

Well, given that GDP growth was only 0.8 percent annual rate during the first six months, you would have to get above three percent for the last six months to average 2 percent for the year. The employment growth predictions here are pretty bad. From the WSJ:

A vast majority of businesses predict the U.S. economy will grow only slightly in 2011, a more negative outlook from July when most called for more robust improvement, according to a survey of U.S. companies released Monday.

The National Association for Business Economics, in its quarterly industry survey of 70 corporate economists, found companies have curtailed plans to hire amid predictions for continued sluggish growth. Yet there were some bright spots, as the survey found significantly more firms reporting rising sales than declining sales.

“Expectations for growth deteriorated quite significantly but the bulk of respondents are not predicting a recession,” said Shawn DuBravac, chief economist for the Consumer Electronics Association and one of the authors of the report.

The economists surveyed by the NABE expect tepid growth, with 82% predicting the gross domestic product will increase by 2.0% or less this year from 2010, and 3% said the economy would in fact contract. That’s a big swing from July when 76% said GDP would grow by 2.1% or more.

Those projections compare with 2.5% to 3.0% range the Federal Reserve forecast in June for 2011 GDP growth.

The Commerce Department is set to release initial GDP figures for the third quarter on Thursday. Economists surveyed by Dow Jones Newswires forecast a 2.7% increase.

“The economy will grow, just less than expected three months ago,” DuBravac said. . . .

Just 29% of respondents said they expect employment will increase in the next six months–the lowest number since January 2010. The survey showed 12% of respondents expect the labor market to weaken further while most say it will remain in its current state. . . .

GDP growth essentially zero for first half of the year

GDP grew at a revised annual rate of 1 percent during the second quarter. That means it actually grew at 0.25 percent. That after a 0.1 percent growth in the first quarter. This growth rate is about half the growth rate in the population during the first half of the year.

The price index for gross domestic purchases increased by 3.3 percent in the second quarter.

Bernake announced no further dramatic increases in the money supply.

Chairman Ben Bernanke is proposing no new steps by the Federal Reserve to boost the economy while hinting that Congress may need to act to stimulate hiring and growth.

Bernanke said Friday that while record-low interest rates will promote growth over time, the weak economy requires further help in the short run. He is speaking at an annual economic conference in Jackson Hole, Wyo.

His speech follows news that the economy grew at an annual rate of just 1 percent this spring and 0.7 percent for the first six months of the year. Only slightly healthier expansion is foreseen for the second half. . . .