The miracle of growth in the US economy

Summary: Let’s look at the four key measures of growth for the US economy. They show the big news about this economic cycle: six years of amazing stable and slow US growth, shrugging off repeated shocks. The latest being the apocalypse of Brexit, so confidently predicted before the UK vote. This has surprised almost everybody, and proven most forecasters wrong. There are important lessons we should learn from this.

Stagnation Snail

Real GDP

Slow growth in real GDP since Q1 2010, with only ½% swings around the average. Each of these swings, up and down, produced almost hysterical commentary. Yet they are small compared to the typical swings seen since WWII. Per capita GDP, a better measure of how well we’re doing, has grown even slower — only 1.8%/year.

Real GDP YoY since 2010

Nonfarm payrolls

Slow and stable job growth in jobs since September 2011, with only ½% swings around the average.

YoY growth in Nonfarm payrolls

Core inflation

Stable increases in core inflation since June 2011, varying only ⅖% from the average, running at roughly the Fed’s target rate. This provides a cushion above deflation, allowing the Fed to act preemptively before our high-debt economy hits that economic antimatter.

CPI less food and energy since June 2011

Total hours worked by production and nonsupervisory employees
in the private sector

Here’s another perspective on employment, covering 80% of all private sector workers. It provides a better metric of the labor component of economic growth than the number of jobs (which can mean twenty hours of work per week — or 50) It also shows slow steady growth.

Index of Aggregate Hours of production and nonsupervisory private sector workers since Sept 2011


Remember all the headlines in the past six years about economic political shocks to America? Massive, traumatic, even irresistible shocks! How many times has Zero Hedge has announced the beginning of the End Times? Quarterly? Monthly?

The results on the US economy: small drops followed by fast recoveries. These are tiny swings compared to the usual fluctuations in the post-WWII era. The cause is not obvious. The QE3 monetary stimulus ended in October 2014. The Federal budget deficit has decreased as a percent of GDP every year since 2014.

The bottom line is that the US is locked into a stable slow growth mode.  Since we have passed the pre-crash peak in almost all measures, it is a true expansion (no longer just a “recovery”). The long anticipated acceleration (a return to the good old days) has disappointed the optimists. The stability has surprised the pessimists. The doomsters are, as usual, delusionally wrong.

This expansion is 84 months long, the sixth longest since 1857 (when NBER began dating them). More relevantly, it is the fourth longest of the twelve cycles since WWII. The Atlanta Fed’s GDPnow model estimates Q2 was +2.4%, implying no recession on the visible horizon. The strong June jobs growth confirms that. The Chauvet-Piger model continues to predict an accelerating recovery (as it has since the recovery ended in June 2009).

Since there is no such thing as a “stall speed”, another dip will not cause a recession (i.e., the economy is not like an airplane, and has no minimum speed below which it crashes). The economy has grown too slowly to overheat or develop serious imbalances. What might cause the next recession?  And when? Nobody knows. We have entered a new era, and the old “clocks” that show the business cycle no longer work. We are sailing an unknown sea without a compass.

What about the confident predictions that generate clickbait headlines on research reports, websites, and newsletters? Most have been wrong for many years (or changed their forecasts with the wind). People read them because they need the illusion of understanding, not because they have been correct — or that we have any basis to believe they will be correct soon.

Embrace the uncertainty. Plan for many possibilities in the next few years.

Exciting in its own way

Slow Economic Growth

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6 thoughts on “The miracle of growth in the US economy”

    1. Pluto,

      Thanks. But its not the clickbait that gets an audience. Super growth! HYPERIUNFLATION COMING! Ten graphs that show we’re about to all die!

      That’s what Americans want to read. The fantastic success of Zero Hedge (and its scores of imitators) is like a patient coughing blood. It shows that something is really wrong inside.

  1. Perhaps worse than the performance of ZH and the imitators is the effect it has on the political process. Or is all of that stuff a part of the political snow job we have been receiving for the past 30 years or so.
    As a contrarian I figure when everyone is preaching gloom and doom we can expect clear sailing. If the winds a light it should also be smooth sailing. Perhaps we are actually experiencing “As good as it gets”.

    1. Doug,

      “everyone is preaching gloom and doom”

      Everyone is not preaching doom. Security markets would not be at record highs (stocks) and lows (interest rates) if that were so.

      But there is a large segment of the US population that has become deluded with doomsterism. On the Right they watch Fox “News” and read Zero Hedge (and a thousand other similarly fact-challenged sources). On the Left they read similarly doomsterish fantasies, about climate and ascendant NAZIs.

      As I have written before, my guess is that these are people in the Outer Party (America’s managers, professionals, and small biz owners) who have become subjects — not citizens — and want entertaining news to give them the feeling of engagement with the great events of our time — without the burden of responsibility or work. They remain functional because this entertainment does not affect their decision-making. They don’t live as if they were the last generation, or prepare for warfare on their suburban streets. A tiny fraction do so, but there is always a fringe.

  2. Pingback: Why Investors Are Deceived By News About The Economy - MarketOnChart

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