Summary: Today we have a quick look at the US economy. Where it’s at. Grading its performance. Where it’s going.
- The slow growth recovery
- Good news!
- Bad news!
- Perhaps very bad news: are we like Japan?
- The clock runs against us
- For More Information
(1) The recovery: slow steady growth
Before looking ahead, let’s look back. In November 2012 the consensus estimate of 2013 real GDP was 2.3% (Wall Street Journal survey of economists). Based on the preliminary estimates of Q4 GDP, current estimate of 2013 GDP is 2%, as of Friday. That’s reasonably close.
Is 2% good or bad? Context matters.
- 2% growth would be horrific for China with potential growth of 5% – 7%, per capita of $6,500.
- The US has grown at 2.2% since 2010, only slightly below the Fed’s 2.2% – 2.4% estimate of long-term GDP growth (a slowing from the post-WW2 average). So 2% is a disappointing slowdown.
- On the other hand, 2% is slow for a recovery, especially following the deepest recession since the 1930’s.
Worse, the trend of GDP has an ugly look. Real GDP might be stabilizing at a lower level of growth. For the second time. The first slowing was after 1980 (the oddly named “Reagan Revolution”).
But real GDP is not always the relevant number. In many ways we living in a nominal world. Profits, savings and many important factors require nominal growth. Unfortunately, the nominal graph looks similar to the graph of real GDP.