Dollar Devaluation and Yuan Revaluation, FOMC Changed Long-Run Goals and Monetary Policy Strategy to Target “Inflation Moderately Above 2 Percent For Some Time” If Inflation Had Been Below 2 Percent “Persistently,” US GDP Contracted at SAAR of 31.7 Percent in IIQ2020 and Decreased 9.1 Percent Relative to a Year Earlier In the Global Recession, with Output in the US Reaching a High in Feb 2020 (https://www.nber.org/cycles.html), in the Lockdown of Economic Activity in the COVID-19 Event, Mediocre Cyclical United States Economic Growth with GDP Five Trillion Dollars Below Trend in the Lost Economic Cycle of the Global Recession with Economic Growth Underperforming Below Trend Worldwide, Cyclically Stagnating Real Private Fixed Investment, Swelling Undistributed Corporate Profits with Profit Contraction in the Global Recession, with Output in the US Reaching a High in Feb 2020 (https://www.nber.org/cycles.html), in the Lockdown of Economic Activity in the COVID-19 Event, Increasing US New Home Sales and Home Prices, World Inflation Waves with Increasing Price Levels In Most Countries and Regions Worldwide, World Cyclical Slow Growth, and Government Intervention in Globalization
Carlos M. Pelaez
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
IA Mediocre
Cyclical United States Economic Growth
IA1
Stagnating Real Private Fixed Investment
IA2
Swelling Undistributed Corporate Profits
IID United States Terms of International Trade
IIA United States
Housing Collapse
IIA1 Sales of New Houses
IIA2
United States House Prices
I World
Inflation Waves
IA Appendix: Transmission of
Unconventional Monetary Policy
IB1 Theory
IB2 Policy
IB3 Evidence
IB4 Unwinding Strategy
IC United
States Inflation
IC Long-term US Inflation
ID Current US Inflation
IE Theory and Reality
of Economic History, Cyclical Slow Growth Not Secular Stagnation and Monetary
Policy Based on Fear of Deflation
III World Financial Turbulence
IV Global Inflation
V World Economic
Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk
Financial Assets
VII Economic
Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe
Haven Currencies
IIIC Appendix on
Fiscal Compact
IIID Appendix on
European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on Deficit Financing of Growth and the
Debt Crisis
The Bureau of Economic Analysis revised the national accounts of
the United States since 1929 (https://www.bea.gov/newsreleases/national/gdp/2018/pdf/gdp2q18_adv.pdf):
“Comprehensive Update of the National Income and
Product Accounts The estimates released today also reflect the results of the
15th comprehensive update of the National Income and Product Accounts (NIPAs).
The updated estimates reflect previously announced improvements, and include
the introduction of new not seasonally adjusted estimates for GDP, GDI, and
their major components. For more information, see the Technical Note. Revised
NIPA table stubs, initial results, and background materials are available on
the BEA Web site.” The Bureau of Economic Analysis provided the annual revision
of the national product accounts in the release of the first estimate or
advanced estimate of IIQ2019 GDP (https://www.bea.gov/system/files/2019-07/gdp2q19_adv.pdf): “The estimates released today also reflect the results of
the Annual Update of the National Income and
Product Accounts (NIPAs). The update covers the first
quarter of 2014 through the first quarter of 2019.” The Bureau of Economic Analysis provides
the annual revision of the national product accounts in the release of the
first estimate or advanced estimate of IIQ2020 GDP (https://www.bea.gov/sites/default/files/2020-07/gdp2q20_adv.pdf): “The estimates released today also reflect the results of
the Annual Update of the National Income and
Product Accounts (NIPAs).
The timespan of the update is the first quarter of 2015 through the fourth
quarter of 2019 for estimates of real GDP and its major components, and the
first quarter of 1999 through the fourth quarter of 2019 for estimates of
income and saving. The reference year remains 2012. More information on the
2020 Annual Update is included in the May Survey of Current Business
article, “GDP and the Economy.””
Long-term economic performance in the United States consisted of
trend growth of GDP at 3 percent per year and of per capita GDP at 2 percent
per year as measured for 1870 to 2010 by Robert E Lucas (2011May). The economy
returned to trend growth after adverse events such as wars and recessions. The
key characteristic of adversities such as recessions was much higher rates of
growth in expansion periods that permitted the economy to recover output,
income and employment losses that occurred during the contractions. Over the
business cycle, the economy compensated the losses of contractions with higher
growth in expansions to maintain trend growth of GDP of 3 percent and of GDP
per capita of 2 percent. The US maintained growth at 3.0 percent on average
over entire cycles with expansions at higher rates compensating for
contractions. US economic growth has been at only 1.2 percent on average in
the cyclical expansion in the 44 quarters from IIIQ2009 to IIQ2020 and in the
global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Boskin (2010Sep) measures
that the US economy grew at 6.2 percent in the first four quarters and 4.5
percent in the first 12 quarters after the trough in the second quarter of
1975; and at 7.7 percent in the first four quarters and 5.8 percent in the first
12 quarters after the trough in the first quarter of 1983 (Professor Michael J.
Boskin, Summer of Discontent, Wall Street
Journal, Sep 2, 2010 http://professional.wsj.com/article/SB10001424052748703882304575465462926649950.html). There are
new calculations using the revision of US GDP and personal income data since
1929 by the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) and the
second estimate of GDP for IIQ2020 (https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf). The average
of 7.7 percent in the first four quarters of major cyclical expansions is in
contrast with the rate of growth in the first four quarters of the expansion
from IIIQ2009 to IIQ2010 of only 2.8 percent obtained by dividing GDP of
$15,557.3 billion in IIQ2010 by GDP of $15,134.1 billion in IIQ2009
{[($15,557.3/$15,134.1) -1]100 = 2.8%], or accumulating the quarter on quarter
growth rates (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
expansion from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.3 percent from
IQ1983 to IIIQ1986, 5.1 percent from IQ1983 to IVQ1986, 5.0 percent from IQ1983
to IQ1987, 5.0 percent from IQ1983 to IIQ1987, 4.9 percent from IQ1983 to
IIIQ1987, 5.0 percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to
IIQ1988, 4.8 percent from IQ1983 to IIIQ1988, 4.8 percent from IQ1983 to
IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983 to IIQ1989,
4.6 percent from IQ1983 to IIIQ1989, 4.5 percent from IQ1983 to IVQ1989. 4.5
percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990, 4.3 percent from
IQ1983 to IIIQ1990, 4.0 percent from IQ1983 to IVQ1990, 3.8 percent from IQ1983
to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent from IQ1983 to
IIIQ1991, 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from IQ1983 to
IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983 to
IIIQ2019, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to
IQ1993, 3.6 percent from IQ1983 to IIQ1993, 3.6 percent from IQ1983 to
IIIQ1993, 3.7 percent from IQ1983 to IVQ1993 and at 7.9 percent from IQ1983 to
IVQ1983 (Section I and earlier https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html). The
National Bureau of Economic Research (NBER) dates a contraction of the US from
IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). The US
maintained growth at 3.0 percent on average over entire cycles with expansions
at higher rates compensating for contractions. Growth at trend in the entire
cycle from IVQ2007 to IIQ2020 and in the global recession with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event would have accumulated to
44.7 percent. GDP in IIQ2020 would be $22,807.6 billion (in constant dollars of
2012) if the US had grown at trend, which is higher by $5525.4 billion than
actual $17,282.2 billion. There are more than five trillion dollars of GDP less
than at trend, explaining the 38.5 million unemployed or underemployed
equivalent to actual unemployment/underemployment of 22.3 percent of the
effective labor force with the largest part originating in the global recession
with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/08/thirty-eight-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2020/07/increase-of-total-nonfarm-payroll-jobs.html). Unemployment is decreasing while employment is increasing in
initial adjustment of the lockdown of economic activity in the global recession
resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-june-2020.pdf). US GDP in IQ2020 is 24.2 percent lower than at trend. US GDP
grew from $15,762.0 billion in IVQ2007 in constant dollars to $17,282.5
billion in IIQ2020 or 9.6 percent at the average annual equivalent rate of 0.7
percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10
percent below trend. Cochrane (2016May02) measures GDP growth in the US at
average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per
year from 2000 to 2015 with only at 2.0 percent annual equivalent in the
current expansion. Cochrane (2016May02) proposes drastic changes in regulation
and legal obstacles to private economic activity. The US missed the opportunity
to grow at higher rates during the expansion and it is difficult to catch up
because growth rates in the final periods of expansions tend to decline. The US
missed the opportunity for recovery of output and employment always afforded in
the first four quarters of expansion from recessions. Zero interest rates and
quantitative easing were not required or present in successful cyclical
expansions and in secular economic growth at 3.0 percent per year and 2.0
percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the
US instead of allegations of secular
stagnation. There is similar behavior in manufacturing. There is classic
research on analyzing deviations of output from trend (see for example
Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term
trend is growth of manufacturing at average 2.9 percent per year from Jul 1919
to Jul 2020. Growth at 2.9 percent per year would raise the NSA index of
manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in
Dec 2007 to 155.1850 in Jul 2020. The actual index NSA in Jul 2020 is 94.7916
which is 38.9 percent below trend. The underperformance of manufacturing in Jul
2020 originates partly in the earlier global recession augmented by the current
global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19. Manufacturing grew at the
average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3
percent per year would raise the NSA index of manufacturing output (SIC,
Standard Industrial Classification) from 108.2987 in Dec 2007 to 162.9490 in
Jul 2020. The actual index NSA in Jul 2020 is 94.7916, which is 41.8 percent
below trend. Manufacturing output grew at average 1.6 percent between Dec 1986
and Jul 2020. Using trend growth of 1.6 percent per year, the index would
increase to 132.2418 in Jul 2020. The output of manufacturing at 94.7916 in Jul
2020 is 28.3 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification
System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the
low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index
increased from 86.3800 in Apr 2009 to 95.7434 in Jul 2020 or 10.8 percent. The
NAICS manufacturing index increased at the annual equivalent rate of 3.5
percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the
NAICS manufacturing output index from 106.6777 in Dec 2007 to 164.4646 in Jul
2020. The NAICS index at 95.7434 in Jul 2020 is 41.8 below trend. The NAICS
manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999
to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output
index from 106.6777 in Dec 2007 to 131.8850 in Jul 2020. The NAICS index at
95.7434 in Jul 2020 is 27.4 percent below trend under this alternative
calculation.
The economy
of the US can be summarized in growth of economic activity or GDP as
fluctuating from mediocre growth of 2.6 percent on an annual basis in 2010 to
1.6 percent in 2011, 2.2 percent in 2012, 1.8 percent in 2013, 2.5 percent in
2014 and 3.1 percent in 2015. GDP growth was 1.7 percent in 2016 and 2.3
percent in 2017. GDP growth was 3.0 percent in 2018 and 2.2 percent in 2019.
The following calculations show that actual growth is around 1.2 percent per
year during the expansion phase. The rate of growth of 1.7 percent in the
entire cycle from 2007 to 2019 is well below 3 percent per year in trend from
1870 to 2010, which the economy of the US always attained for entire cycles in
expansions after events such as wars and recessions (Lucas 2011May). Revisions
and enhancements of United States GDP and personal income accounts by the
Bureau of Economic Analysis (BEA) (https://apps.bea.gov/iTable/index_nipa.cfm) provides valuable information on long-term growth and
cyclical behavior. Table Summary provides relevant data.
Table Summary, Long-term and Cyclical Growth of GDP, Real
Disposable Income and Real Disposable Income per Capita
|
|
GDP |
|
|
Long-Term |
|
|
|
1929-2019 |
3.2 |
|
|
1947-2019 |
3.2 |
|
|
Whole Cycles |
|
|
|
1980-1989 |
3.5 |
|
|
2006-2019 |
1.7 |
|
|
2007-2019 |
1.7 |
|
|
Cyclical Contractions ∆% |
|
|
|
IQ1980 to IIIQ1980, IIIQ1981 to IVQ1982 |
-4.8 |
|
|
IVQ2007 to IIQ2009 |
-4.0 |
|
|
Cyclical Expansions Average Annual Equivalent ∆% |
|
|
|
IQ1983 to IVQ1985 IQ1983-IQ1986 IQ1983-IIIQ1986 IQ1983-IVQ1986 IQ1983-IQ1987 IQ1983-IIQ1987 IQ1983-IIIQ1987 IQ1983 to IVQ1987 IQ1983 to IQ1988 IQ1983 to IIQ1988 IQ1983 to IIIQ1988 IQ1983 to IVQ1988 IQ1983 to IQ1989 IQ1983 to IIQ1989 IQ1983 to IIIQ1989 IQ1983 to IVQ1989 IQ1983 to IQ1990 IQ1983 to IIQ1990 IQ1983 to IIIQ1990 IQ1983 to IVQ1990 |
5.9 5.7 5.3 5.1 5.0 5.0 4.9 5.0 4.9 4.9 4.8 4.8 4.8 4.7 4.6 4.5 4.5 4.4 4.3 4.0 |
|
|
IQ1983 to IQ1991 IQ1983 to IIQ1991 IQ1983 to IIIQ1991 IQ1983 to IVQ1991 IQ1983 to IQ1992 IQ1983 to IIQ1992 IQ1983 to IIIQ1992 IQ1983 to IVQ1992 IQ1983 to IQ1993 IQ1983 to IIQ1993 IQ1983 to IIIQ1993 IQ1983 to IV1993 |
3.8 3.8 3.8 3.7 3.7 3.7 3.7 3.8 3.7 3.6 3.6 3.7 |
|
|
First Four Quarters IQ1983 to IVQ1983 |
7.9 |
|
|
IIIQ2009 to IIQ2020 |
1.2 |
|
|
First Four Quarters IIIQ2009 to IIQ2010 |
2.8 |
|
|
|
Real Disposable Income |
Real Disposable Income per Capita |
|
Long-Term |
|
|
|
1929-2019 |
3.2 |
2.0 |
|
1947-1999 |
3.7 |
2.3 |
|
Whole Cycles |
|
|
|
1980-1989 |
3.5 |
2.6 |
|
2006-2019 |
2.2 |
1.5 |
Source: Bureau
of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
The
revisions and enhancements of United States GDP and personal income accounts by
the Bureau of Economic Analysis (BEA) (http://bea.gov/iTable/index_nipa.cfm) also provide critical information in assessing the current
rhythm of US economic growth. The economy appears to be moving at a pace around
1.2 percent per year. Table Summary GDP provides the data.
- Average Annual Growth in
the Past Thirty-Three Quarters.
GDP growth in the four quarters of 2012, the four quarters of 2013, the
four quarters of 2014, the four quarters of 2015, the four quarters of
2016, the four quarters of 2017, the four quarters of 2018, the four
quarters of 2019 and the two quarters of 2020 accumulated to 8.0 percent.
This growth is equivalent to 0.9 percent per year, obtained by dividing
GDP in IIQ2020 of $17,282.2 billion by GDP in IVQ2011 of $16,004.1 billion
and compounding by 4/34: {[($17,282.2/$16,004.1)4/34 -1]100 =
0.9 percent}.
- Average Annual Growth in
the Past Four Quarters. GDP growth in the four
quarters from IQ2019 to IIQ2020 accumulated to minus 9.1 percent that is
equivalent to minus 31.7 percent in a year. This is obtained by dividing
GDP in IIQ2020 of $17,282.2 billion by GDP in IIQ2019 of $19,020.6 billion
and compounding by 4/4: {[($17,282.2/$19,020.6)4/4 -1]100 = -9.1%}.
The US economy decreased 9.1 percent in IIQ2020 relative to the same
quarter a year earlier in IIQ2019 (See Table 6 at https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf and the complete data at https://apps.bea.gov/iTable/index_nipa.cfm). Growth was at annual equivalent 5.5 percent in
IIQ2014 and 5.0 percent IIIQ2014 and only at 2.3 percent in IVQ2014. GDP
grew at annual equivalent 3.8 percent in IQ2015, 2.7 percent in IIQ2015,
1.5 percent in IIIQ2015 and 0.6 percent in IVQ2015. GDP grew at annual
equivalent 2.3 percent in IQ2016 and at 1.3 percent annual equivalent in
IIQ2016. GDP increased at 2.2 percent annual equivalent in IIIQ2016 and at
2.5 percent in IVQ2016. GDP grew at annual equivalent 2.3 percent in
IQ2017 and at annual equivalent 1.7 percent in IIQ2017. GDP grew at annual
equivalent 2.9 percent in IIIQ2017. GDP grew at annual equivalent 3.9
percent in IVQ2017. GDP grew at annual equivalent 3.8 percent in IQ2018,
increasing at 2.7 percent annual equivalent in IIQ2018. GDP grew at annual
equivalent 2.1 percent in IIIQ2018 and at 1.3 percent in IVQ2018. GDP grew
at annual equivalent 2.9 percent in IQ2019 and at annual equivalent 1.5
percent in IIQ2019. GDP grew at annual equivalent 2.6 percent in IIIQ2019
and at 2.4 percent annual equivalent in IVQ2019. Growth was at annual
equivalent minus 5.0 percent in IQ2020. Growth was at annual equivalent
minus 31.7 percent in IIQ2020. Another important revelation of the
revisions and enhancements is that GDP was flat at 0.1 in IVQ2012, which
is in the borderline of contraction, and negative in IQ2014. US GDP fell
0.3 percent in IQ2014. The rate of growth of GDP in the revision of
IIIQ2013 is 3.2 percent in seasonally adjusted annual rate (SAAR).
|
|
Real GDP,
Billions Chained 2012 Dollars |
∆% Relative
to IVQ2007 |
∆% Relative
to Prior Quarter |
∆% |
|
IVQ2007 |
15,762.0 |
NA |
0.6 |
2.0 |
|
IVQ2011 |
16,004.1 |
1.5 |
1.2 |
1.6 |
|
IQ2012 |
16,129.5 |
2.3 |
0.8 |
2.7 |
|
IIQ2012 |
16,198.8 |
2.8 |
0.4 |
2.4 |
|
IIIQ2012 |
16,220.7 |
2.9 |
0.1 |
2.5 |
|
IVQ2012 |
16,239.1 |
3.0 |
0.1 |
1.5 |
|
IQ2013 |
16,383.0 |
3.9 |
0.9 |
1.6 |
|
IIQ2013 |
16,403.2 |
4.1 |
0.1 |
1.3 |
|
IIIQ2013 |
16,531.7 |
4.9 |
0.8 |
1.9 |
|
IVQ2013 |
16,663.6 |
5.7 |
0.8 |
2.6 |
|
IQ2014 |
16,616.5 |
5.4 |
-0.3 |
1.4 |
|
IIQ2014 |
16,841.5 |
6.8 |
1.4 |
2.7 |
|
IIIQ2014 |
17,047.1 |
8.2 |
1.2 |
3.1 |
|
IVQ2014 |
17,143.0 |
8.8 |
0.6 |
2.9 |
|
IQ2015 |
17,305.8 |
9.8 |
0.9 |
4.1 |
|
IIQ2015 |
17,422.8 |
10.5 |
0.7 |
3.5 |
|
IIIQ2015 |
17,486.0 |
10.9 |
0.4 |
2.6 |
|
IVQ2015 |
17,514.1 |
11.1 |
0.2 |
2.2 |
|
IQ2016 |
17,613.3 |
11.7 |
0.6 |
1.8 |
|
IIQ2016 |
17,668.2 |
12.1 |
0.3 |
1.4 |
|
IIIQ2016 |
17,764.4 |
12.7 |
0.5 |
1.6 |
|
IVQ2016 |
17,876.2 |
13.4 |
0.6 |
2.1 |
|
IQ2017 |
17,977.3 |
14.1 |
0.6 |
2.1 |
|
IIQ2017 |
18,054.1 |
14.5 |
0.4 |
2.2 |
|
IIIQ2017 |
18,185.6 |
15.4 |
0.7 |
2.4 |
|
IVQ2017 |
18,359.4 |
16.5 |
1.0 |
2.7 |
|
IQ2018 |
18,530.5 |
17.6 |
0.9 |
3.1 |
|
IIQ2018 |
18,654.4 |
18.4 |
0.7 |
3.3 |
|
IIIQ2018 |
18,752.4 |
19.0 |
0.5 |
3.1 |
|
IVQ2018 |
18,813.9 |
19.4 |
0.3 |
2.5 |
|
IQ2019 |
18,950.3 |
20.2 |
0.7 |
2.3 |
|
IIQ2019 |
19,020.6 |
20.7 |
0.4 |
2.0 |
|
IIIQ2019 |
19,141.7 |
21.4 |
0.6 |
2.1 |
|
IVQ2019 |
19,254.0 |
22.2 |
0.6 |
2.3 |
|
IQ2020 |
19,010.8 |
20.6 |
-1.3 |
0.3 |
|
IIQ2020 |
17,282.2 |
9.6 |
-9.1 |
-9.1 |
|
Cumulative ∆%
IQ2012 to IIQ2020 |
8.0 |
|
|
|
|
Annual
Equivalent ∆% |
0.9 |
|
|
Source: US
Bureau of Economic Analysis https://apps.bea.gov/iTable/index_nipa.cfm
Chart GDP of the US Bureau of
Economic Analysis provides the rates of growth of GDP at SAAR (seasonally
adjusted annual rate) in the 16 quarters from IIIQ2016 to IIQ2020. Growth has
been fluctuating. The final data point is minus 31.7 in percent in IIQ2020 in the global recession, with output in the US reaching a
high in Feb 2020 (https://www.nber.org/cycles.html), in the lockdown of economic activity in the COVID-19
event.
Chart GDP,
Seasonally Adjusted Quarterly Rates of Growth of United States GDP, ∆%
Source: US
Bureau of Economic Analysis
https://www.bea.gov/data/gdp/gross-domestic-product
Characteristics of the four
cyclical contractions are in Table I-4 with the first column showing the number
of quarters of contraction; the second column the cumulative percentage
contraction; and the final column the average quarterly rate of contraction.
There were two contractions from IQ1980 to IIIQ1980 and from IIIQ1981 to
IVQ1982 separated by three quarters of expansion. The drop of output combining
the declines in these two contractions is 4.8 percent, which is almost equal to
the decline of 4.0 percent in the contraction from IVQ2007 to IIQ2009. In
contrast, during the Great Depression in the four years of 1930 to 1933, GDP in
constant dollars fell 26.3 percent cumulatively and fell 45.3 percent in
current dollars (Pelaez and Pelaez, Financial Regulation after the Global
Recession (2009a), 150-2, Pelaez and Pelaez, Globalization and the
State, Vol. II (2009b), 205-7 and revisions in https://apps.bea.gov/iTable/index_nipa.cfm). The comparison of the global
recession after 2007 with the Great Depression is entirely misleading.
Table I-4, US,
Number of Quarters, GDP Cumulative Percentage Contraction and Average
Percentage Annual Equivalent Rate in Cyclical Contractions
|
|
Number of
Quarters |
Cumulative
Percentage Contraction |
Average
Percentage Rate |
|
IIQ1953 to
IIQ1954 |
3 |
-2.4 |
-0.8 |
|
IIIQ1957 to
IIQ1958 |
3 |
-3.0 |
-1.0 |
|
IVQ1973 to
IQ1975 |
5 |
-3.1 |
-0.6 |
|
IQ1980 to
IIIQ1980 |
2 |
-2.2 |
-1.1 |
|
IIIQ1981 to
IVQ1982 |
4 |
-2.6 |
-0.65 |
|
IVQ2007 to
IIQ2009 |
6 |
-4.0 |
-0.7 |
Sources:
Source: Bureau of Economic Analysis https://apps.bea.gov/iTable/index_nipa.cfm
Table I-5 shows
the mediocre average annual equivalent growth rate of 1.2 percent of the US
economy in the forty-four quarters of the current cyclical expansion from
IIIQ2009 to IIQ2020. There is sharp contraction in IIQ2020 at SAAR of minus 31.7
percent in the global recession with output in the US reaching a high
in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. In sharp contrast, the average growth rate of
GDP was:
- 5.7 percent in the first thirteen
quarters of expansion from IQ1983 to IQ1986
- 5.3 percent in the first fifteen quarters
of expansion from IQ1983 to IIIQ1986
- 5.1 percent in the first sixteen quarters
of expansion from IQ1983 to IVQ1986
- 5.0 percent in the first seventeen
quarters of expansion from IQ1983 to IQ1987
- 5.0 percent in the first eighteen
quarters of expansion from IQ1983 to IIQ1987
- 4.9 percent in the first nineteen
quarters of expansion from IQ1983 to IIIQ1987
- 5.0 percent in the first twenty quarters
of expansion from IQ1983 to IVQ1987
- 4.9 percent in the first twenty-first
quarters of expansion from IQ1983 to IQ1988
- 4.9 percent in the first twenty-two
quarters of expansion from IQ1983 to IIQ1988
- 4.8 percent in the first twenty-three
quarters of expansion from IQ1983 to IIIQ1988
- 4.8 percent in the first twenty-four
quarters of expansion from IQ1983 to IVQ1988
- 4.8 percent in the first twenty-five
quarters of expansion from IQ1983 to IQ1989
- 4.7 percent in the first twenty-six
quarters of expansion from IQ1983 to IIQ1989
- 4.6 percent in the first twenty-seven
quarters of expansion from IQ1983 to IIIQ1989
- 4.5 percent in the first twenty-eight
quarters of expansion from IQ1983 to IVQ1989
- 4.5 percent in the first twenty-nine
quarters of expansion from IQ1983 to IQ1990
- 4.4 percent in the first thirty quarters
of expansion from IQ1983 to IIQ1990
- 4.3 percent in the first thirty-one
quarters of expansion from IQ1983 to IIIQ1990
- 4.0 percent in the first thirty-two
quarters of expansion from IQ1983 to IVQ1990
- 3.8 percent in the first thirty-three
quarters of expansion from IQ1983 to IQ1991
- 3.8 percent in the first thirty-four quarters of
expansion from IQ1983 to IIQ1991
- 3.8 percent in the first thirty-five quarters of
expansion from IQ1983 to IIIQ1991
- 3.7 percent in the thirty-six quarters of expansion
from IQ1983 to IVQ1991
- 3.7 percent in the thirty-seven quarters of expansion
from IQ1983 to IQ1992
- 3.7 percent in the thirty-eight quarters of expansion
from IQ1983 to IIQ1992
- 3.7 percent in the thirty-nine quarters of expansion
from IQ1983 to IIIQ1992
- 3.8 percent in the forty quarters of expansion from
IQ1983 to IVQ1992
- 3.7 percent in the forty-one quarters from IQ1983 to
IQ1993
- 3.6 percent in the forty-two quarters from IQ1983 to
IIQ1993
- 3.6 percent in the forty-three quarters from IQ1983 to
IIIQ1993
- 3.7 percent in the forty-four quarters from IQ1983 to
IVQ1993
The line
“average first four quarters in four expansions” provides the average growth
rate of 7.7 percent with 7.8 percent from IIIQ1954 to IIQ1955, 9.2 percent from
IIIQ1958 to IIQ1959, 6.1 percent from IIIQ1975 to IIQ1976 and 7.9 percent from
IQ1983 to IVQ1983. The United States missed this opportunity of high growth in
the initial phase of recovery. BEA data show the US economy in standstill
relative to historical experience with annual growth of 2.6 percent in 2010
decelerating to 1.6 percent annual growth in 2011, 2.2 percent in 2012, 1.8 percent
in 2013, 2.5 percent in 2014, 3.1 percent in 2015, 1.7 percent in 2016, 2.3
percent in 2017, 3.0 percent in 2018 and 2.2 percent in 2019 (http://www.bea.gov/iTable/index_nipa.cfm). The expansion
from IQ1983 to IQ1986 was at the average annual growth rate of 5.7 percent, 5.1
percent from IQ1983 to IVQ1986, 4.9 percent from IQ1983 to IIIQ1987, 5.0
percent from IQ1983 to IVQ1987, 4.9 percent from IQ1983 to IQ1988, 4.9 percent
from IQ1983 to IIQ1988, 4.8 percent from IQ1983 to IIIQ1988. 4.8 percent from
IQ1983 to IVQ1988, 4.8 percent from IQ1983 to IQ1989, 4.7 percent from IQ1983
to IIQ1989, 4.6 percent from IQ1983 to IIIQ1989. 4.5 percent from IQ1983 to
IVQ1989, 4.5 percent from IQ1983 to IQ1990, 4.4 percent from IQ1983 to IIQ1990,
4.3 percent from IQ1983 to IIIQ1990. 4.0 percent from IQ1983 to IVQ1990. 3.8
percent from IQ1983 to IQ1991, 3.8 percent from IQ1983 to IIQ1991, 3.8 percent
from IQ1983 to IIIQ1991. 3.7 percent from IQ1983 to IVQ1991, 3.7 percent from
IQ1983 to IQ1992, 3.7 percent from IQ1983 to IIQ1992, 3.7 percent from IQ1983
to IIIQ1992, 3.8 percent from IQ1983 to IVQ1992, 3.7 percent from IQ1983 to
IQ1993. 3.6 percent from IQ1983 to IIQ1993. 3.6 percent from IQ1983 to
IIIQ1993, 3.7 percent from IQ1983 to IVQ1993 and at 7.9 percent from IQ1983 to
IVQ1983. The National Bureau of Economic Research (NBER) dates a contraction of
the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm). GDP grew 2.8
percent in the first four quarters of the expansion from IIIQ2009 to IIQ2010. GDP growth
in the thirty-four quarters from IQ2012 to IIQ2020 accumulated to 8.0 percent.
This growth is equivalent to 0.9 percent per year, obtained by dividing GDP in
IIQ2020 of $17,282.2 billion by GDP in IVQ2011 of $16,004.1 billion and
compounding by 4/34: {[($17,282.2/$16,004.1)4/34 -1]100 = 0.9
percent}.
Table I-5, US,
Number of Quarters, Cumulative Growth and Average Annual Equivalent Growth Rate
in Cyclical Expansions
|
|
Number |
Cumulative
Growth ∆% |
Average
Annual Equivalent Growth Rate |
|
IIIQ 1954 to
IQ1957 |
11 |
12.8 |
4.5 |
|
First Four
Quarters IIIQ1954 to IIQ1955 |
4 |
7.8 |
|
|
IIQ1958 to
IIQ1959 |
5 |
10.0 |
7.9 |
|
First Four
Quarters IIIQ1958 to
IIQ1959 |
4 |
9.2 |
|
|
IIQ1975 to
IVQ1976 |
8 |
8.3 |
4.1 |
|
First Four
Quarters IIIQ1975 to IIQ1976 |
4 |
6.1 |
|
|
IQ1983-IQ1986
IQ1983-IIIQ1986
IQ1983-IVQ1986 IQ1983-IQ1987
IQ1983-IIQ1987 IQ1983 to
IIIQ1987 IQ1983 to
IVQ1987 IQ1983 to
IQ1988 IQ1983 to
IIQ1988 IQ1983 to
IIIQ1988 IQ1983 to
IVQ1988 IQ1983 to
IQ1989 IQ1983 to
IIQ1989 IQ1983 to
IIIQ1989 IQ1983 to
IVQ1989 IQ1983 to
IQ1990 IQ1983 to
IIQ1990 IQ1983 to
IIIQ1990 IQ1983 to
IVQ1990 IQ1983 to
IQ1991 IQ1983 to
IIQ1991 IQ1983 to
IIIQ1991 IQ1983 to
IVQ1991 IQ1983 to
IQ1992 IQ1983 to
IIQ1992 IQ1983 to
IIIQ1992 IQ1983 to
IVQ1992 IQ1983 to
IQ1993 IQ1983 to
IIQ1993 IQ1983 to
IIIQ1993 IQ1983 to
IVQ1993 |
13 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 |
19.8 21.5 22.1 23.0 24.4 25.4 27.6 28.3 29.9 30.7 32.5 33.8 34.8 35.8 36.1 37.6 38.1 38.2 36.9 36.3 37.3 38.0 38.5 40.2 41.7 43.1 44.6 44.8 45.7 46.4 48.3 |
5.7 5.3 5.1 5.0 5.0 4.9 5.0 4.9 4.9 4.8 4.8 4.8 4.7 4.6 4.5 4.5 4.4 4.3 4.0 3.8 3.8 3.8 3.7 3.7 3.7 3.7 3.8 3.7 3.6 3.6 3.7 |
|
First Four
Quarters IQ1983 to IVQ1983 |
4 |
7.9 |
|
|
Average First
Four Quarters in Four Expansions* |
|
7.7 |
|
|
IIIQ2009 to IIQ2020 |
44 |
14.2 |
1.2 |
|
First Four
Quarters IIIQ2009 to IIQ2010 |
|
2.8 |
|
*First Four
Quarters: 7.8% IIIQ1954-IIQ1955; 9.2% IIIQ1958-IIQ1959; 6.1% IIIQ1975-IQ1976;
7.8% IQ1983-IVQ1983
Source: Bureau
of Economic Analysis https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-8 shows
US real quarterly GDP growth from 1980 to 1993. The economy contracted during
the recession and then expanded vigorously throughout the 1980s, rapidly
eliminating the unemployment caused by the contraction. The National Bureau of
Economic Research (NBER) dates a contraction of the US from IQ1990 (Jul) to
IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of
chained 2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm).
Chart I-8, US, Real GDP, 1980-1993
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-9
shows the entirely different situation of real quarterly GDP in the US between
2007 and 2020. The economy has underperformed during the first forty-four
quarters of expansion for the first time in the comparable contractions since
the 1950s. The US economy was in a perilous cyclical slow growth now in the
global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event, shown by contraction sharp
contractions in the final data points in IQ2020 and IIQ2020.
Chart I-9, US, Real GDP, 2007-2020
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
As shown in
Tables I-4 and I-5 above the loss of real GDP in the US during the contraction
was 4.0 percent but the gain in the cyclical expansion has been only 14.1
percent (first to the last row in Table I-5), using all latest revisions. As a
result, the level of real GDP in IIQ2020 with the second estimate and revisions
is higher by only 9.6 percent than the level of real GDP in IVQ2007. The US
maintained growth at 3.0 percent on average over entire cycles with expansions
at higher rates compensating for contractions. Growth at trend in the entire
cycle from IVQ2007 to IIQ2020 and in the global recession with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event would have accumulated to
44.7 percent. GDP in IIQ2020 would be $22,807.6 billion (in constant dollars of
2012) if the US had grown at trend, which is higher by $5525.4 billion than
actual $17,282.2 billion. There are more than five trillion dollars of GDP less
than at trend, explaining the 38.5 million unemployed or underemployed
equivalent to actual unemployment/underemployment of 22.3 percent of the
effective labor force with the largest part originating in the global recession
with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event (https://cmpassocregulationblog.blogspot.com/2020/08/thirty-eight-million-unemployed-or.html and earlier https://cmpassocregulationblog.blogspot.com/2020/07/increase-of-total-nonfarm-payroll-jobs.html). Unemployment is decreasing while employment is increasing in
initial adjustment of the lockdown of economic activity in the global recession
resulting from the COVID-19 event (https://www.bls.gov/cps/employment-situation-covid19-faq-june-2020.pdf). US GDP in IQ2020 is 24.2 percent lower than at trend. US GDP
grew from $15,762.0 billion in IVQ2007 in constant dollars to $17,282.5
billion in IIQ2020 or 9.6 percent at the average annual equivalent rate of 0.7
percent. Professor John H. Cochrane (2014Jul2) estimates US GDP at more than 10
percent below trend. Cochrane (2016May02) measures GDP growth in the US at
average 3.5 percent per year from 1950 to 2000 and only at 1.76 percent per
year from 2000 to 2015 with only at 2.0 percent annual equivalent in the
current expansion. Cochrane (2016May02) proposes drastic changes in regulation
and legal obstacles to private economic activity. The US missed the opportunity
to grow at higher rates during the expansion and it is difficult to catch up
because growth rates in the final periods of expansions tend to decline. The US
missed the opportunity for recovery of output and employment always afforded in
the first four quarters of expansion from recessions. Zero interest rates and
quantitative easing were not required or present in successful cyclical
expansions and in secular economic growth at 3.0 percent per year and 2.0
percent per capita as measured by Lucas (2011May). There is cyclical uncommonly slow growth in the
US instead of allegations of secular
stagnation. There is similar behavior in manufacturing. There is classic
research on analyzing deviations of output from trend (see for example
Schumpeter 1939, Hicks 1950, Lucas 1975, Sargent and Sims 1977). The long-term
trend is growth of manufacturing at average 2.9 percent per year from Jul 1919
to Jul 2020. Growth at 2.9 percent per year would raise the NSA index of
manufacturing output (SIC, Standard Industrial Classification) from 108.2987 in
Dec 2007 to 155.1850 in Jul 2020. The actual index NSA in Jul 2020 is 94.7916
which is 38.9 percent below trend. The underperformance of manufacturing in Jul
2020 originates partly in the earlier global recession augmented by the current
global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19. Manufacturing grew at the
average annual rate of 3.3 percent between Dec 1986 and Dec 2006. Growth at 3.3
percent per year would raise the NSA index of manufacturing output (SIC,
Standard Industrial Classification) from 108.2987 in Dec 2007 to 162.9490 in
Jul 2020. The actual index NSA in Jul 2020 is 94.7916, which is 41.8 percent
below trend. Manufacturing output grew at average 1.6 percent between Dec 1986
and Jul 2020. Using trend growth of 1.6 percent per year, the index would
increase to 132.2418 in Jul 2020. The output of manufacturing at 94.7916 in Jul
2020 is 28.3 percent below trend under this alternative calculation. Using the NAICS (North American Industry Classification
System), manufacturing output fell from the high of 110.5147 in Jun 2007 to the
low of 86.3800 in Apr 2009 or 21.8 percent. The NAICS manufacturing index
increased from 86.3800 in Apr 2009 to 95.7434 in Jul 2020 or 10.8 percent. The
NAICS manufacturing index increased at the annual equivalent rate of 3.5
percent from Dec 1986 to Dec 2006. Growth at 3.5 percent would increase the
NAICS manufacturing output index from 106.6777 in Dec 2007 to 164.4646 in Jul
2020. The NAICS index at 95.7434 in Jul 2020 is 41.8 below trend. The NAICS
manufacturing output index grew at 1.7 percent annual equivalent from Dec 1999
to Dec 2006. Growth at 1.7 percent would raise the NAICS manufacturing output
index from 106.6777 in Dec 2007 to 131.8850 in Jul 2020. The NAICS index at
95.7434 in Jul 2020 is 27.4 percent below trend under this alternative
calculation.
Table I-6 shows
that the contraction concentrated in two quarters: decline of 2.2 percent in
IVQ2008 relative to the prior quarter and decline of 1.1 percent in IQ2009
relative to IVQ2008. The combined fall of GDP in IVQ2008 and IQ2009 was 3.3
percent {[(1-0.022) x (1-0.011) -1]100 = -3.3%}, or {[(IQ2009
$15,155.9)/(IIIQ2008 $15,677.0) – 1]100 = -3.3%} except for rounding. Those two
quarters coincided with the worst effects of the financial crisis (Cochrane and
Zingales 2009). GDP fell 0.1 percent in IIQ2009 but grew 0.4 percent in
IIIQ2009, which is the beginning of recovery in the cyclical dates of the NBER.
Most of the recovery occurred in five successive quarters from IVQ2009 to
IVQ2010 of growth of 1.1 percent in IVQ2009, 0.4 percent in IQ2010, 0.9 percent
in IIQ2010 and nearly equal growth at 0.7 percent in IIIQ2010 and 0.5 percent in
IVQ2010 for cumulative growth in those five quarters of 3.8 percent, obtained
by accumulating the quarterly rates {[(1.011 x 1.004 x 1.009 x 1.007 x 1.005) –
1]100 = 3.7%} or {[(IVQ2010 $15,750.6)/(IIIQ2009 $15,189.2) – 1]100 = 3.7%}
with minor rounding difference. The economy then stalled during the first half
of 2011 with decline of 0.2 percent in IQ2011 and growth of 0.7 percent in
IIQ2011 for combined annual equivalent rate of 1.0 percent {(0.998 x 1.007)2}.
The economy grew 0.0 percent in IIIQ2011 for annual equivalent growth of 0.0
percent in the first three quarters {[(0.998 x 1.007 x 1.00)4/3
-1]100 = 0.7%}. Growth picked up in IVQ2011 with 1.2 percent relative to
IIIQ2011. Growth in a quarter relative to a year earlier in Table I-6 slows
from over 2.6 percent during three consecutive quarters from IIQ2010 to IVQ2010
to 1.9 percent in IQ2011, 1.7 percent in IIQ2011, 0.9 percent in IIIQ2011 and
1.6 percent in IVQ2011. As shown below, growth of 1.2 percent in IVQ2011 was
partly driven by inventory accumulation. In IQ2012, GDP grew 0.8 percent
relative to IVQ2011 and 2.7 percent relative to IQ2011, decelerating to 0.4
percent in IIQ2012 and 2.4 percent relative to IIQ2011 and 0.1 percent in
IIIQ2012 and 2.5 percent relative to IIIQ2011. Growth was 0.1 percent in
IVQ2012 with 1.5 percent relative to a year earlier but mostly because of
deduction of 1.70 percentage points of inventory divestment and 0.63 percentage
points of reduction of one-time national defense expenditures. Growth was 0.9
percent in IQ2013 and 1.6 percent relative to IQ2012 in large part because of
burning savings to consume caused by financial repression of zero interest
rates. There is similar growth of 0.1 percent in IIQ2013 and 1.3 percent
relative to a year earlier. In IIIQ2013, GDP grew 0.8 percent relative to the
prior quarter and 1.9 percent relative to the same quarter a year earlier with
inventory accumulation contributing 1.48 percentage points to growth at 3.2
percent SAAR in IIIQ2013. GDP increased 0.8 percent in IVQ2013 and 2.6 percent
relative to a year earlier. GDP fell 0.3 percent in IQ2014 and grew 1.4 percent
relative to a year earlier. Inventory divestment deducted 1.40 percentage
points from GDP growth in IQ2014. GDP grew 1.4 percent in IIQ2014, 2.7 percent
relative to a year earlier and at 5.5 SAAR with inventory change contributing
1.05 percentage points. GDP grew 1.2 percent in IIIQ2014 and 3.1 percent
relative to a year earlier. GDP grew 0.6 percent in IVQ2014 and 2.9 percent
relative to a year earlier. GDP increased 0.9 percent in IQ2015 and increased
4.1 percent relative to a year earlier partly because of low level during
contraction of 0.3 percent in IQ2014. GDP grew 0.7 percent in IIQ2015 and 3.4
percent relative to a year earlier. GDP grew 0.4 percent in IIIQ2015 and 2.6
percent relative to a year earlier. GDP increased 0.2 percent in IVQ2015 and
increased 2.2 percent relative to a year earlier. GDP grew 0.6 percent in
IQ2016 and increased 1.8 percent relative to a year earlier. GDP grew 0.3
percent in IIQ2016 and increased 1.4 percent relative to a year earlier. GDP
grew 0.5 percent in IIIQ2016 and increased 1.6 percent relative to a year
earlier. GDP grew 0.6 percent in IVQ2016 and increased 2.1 percent relative to
a year earlier. GDP grew 0.6 percent in IQ2017 and increased 2.1 percent
relative to a year earlier. GDP grew 0.4 percent in IIQ2017 and 2.2
percent relative to a year earlier. GDP
increased 0.7 percent in IIIQ2017 and increased 2.4 percent relative to a year
earlier. GDP grew 1.0 percent in IVQ2017 and 2.7 percent relative to a year
earlier. GDP increased 0.9 percent in IQ2018 and increased 3.1 percent relative
to a year earlier. GDP grew 0.7 percent in IIQ2018 and increased 3.3 percent
relative to a year earlier. GDP increased 0.5 percent in IIIQ2018 and increased
3.1 percent relative to a year earlier. GDP grew 0.3 percent in IVQ2018 and increased
2.5 percent relative to a year earlier. GDP grew 0.7 percent in IQ2019 and
increased 2.3 percent relative to a year earlier. GDP grew 0.4 percent in
IIQ2019 and increased 2.0 percent relative to a year earlier. GDP grew 0.6
percent in IIIQ2019 and increased 2.1 percent relative to a year earlier. GDP
grew 0.6 percent in IVQ2019 and increased 2.3 percent relative to a year
earlier. GDP decreased 1.3 percent in IQ2020 and increased 0.3 percent relative
to a year earlier. GDP decreased 9.1 percent in IIQ2020 and decreased 9.1
percent relative to a year earlier (See Table 6 at https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf and entire
data in https://apps.bea.gov/iTable/index_nipa.cfm), in the
global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Rates of a
quarter relative to the prior quarter capture better deceleration of the
economy than rates on a quarter relative to the same quarter a year earlier.
The critical question for which there is not yet definitive solution is whether
what lies ahead is continuing growth recession with the economy crawling and
unemployment/underemployment at extremely high levels or another contraction or
conventional recession. Forecasts of various sources continued to maintain high
growth in 2011 without taking into consideration the continuous slowing of the
economy in late 2010 and the first half of 2011. The sovereign debt crisis in
the euro area and growth in China have been common sources of doubts on the
rate and direction of economic growth in the US. There is weak internal demand
in the US with almost recent higher growth of investment and spikes of
consumption driven by burning saving because of financial repression in the
form of low interest rates and bloated balance sheet of the Fed.
Table I-6, US,
Real GDP and Percentage Change Relative to IVQ2007 and Prior Quarter, Billions
Chained 2012 Dollars and ∆%
|
|
Real GDP,
Billions Chained 2012 Dollars |
∆% Relative
to IVQ2007 |
∆% Relative
to Prior Quarter |
∆% |
|
IVQ2007 |
15,762.0 |
NA |
0.6 |
2.0 |
|
IQ2008 |
15,671.4 |
-0.6 |
-0.6 |
1.1 |
|
IIQ2008 |
15,752.3 |
-0.1 |
0.5 |
1.1 |
|
IIIQ2008 |
15,667.0 |
-0.6 |
-0.5 |
0.0 |
|
IVQ2008 |
15,328.0 |
-2.8 |
-2.2 |
-2.8 |
|
IQ2009 |
15,155.9 |
-3.8 |
-1.1 |
-3.3 |
|
IIQ2009 |
15,134.1 |
-4.0 |
-0.1 |
-3.9 |
|
IIIQ2009 |
15,189.2 |
-3.6 |
0.4 |
-3.0 |
|
IV2009 |
15,356.1 |
-2.6 |
1.1 |
0.2 |
|
IQ2010 |
15,415.1 |
-2.2 |
0.4 |
1.7 |
|
IIQ2010 |
15,557.3 |
-1.3 |
0.9 |
2.8 |
|
IIIQ2010 |
15,672.0 |
-0.6 |
0.7 |
3.2 |
|
IVQ2010 |
15,750.6 |
-0.1 |
0.5 |
2.6 |
|
IQ2011 |
15,712.8 |
-0.3 |
-0.2 |
1.9 |
|
IIQ2011 |
15,825.1 |
0.4 |
0.7 |
1.7 |
|
IIIQ2011 |
15,820.7 |
0.4 |
0.0 |
0.9 |
|
IVQ2011 |
16,004.1 |
1.5 |
1.2 |
1.6 |
|
IQ2012 |
16,129.5 |
2.3 |
0.8 |
2.7 |
|
IIQ2012 |
16,198.8 |
2.8 |
0.4 |
2.4 |
|
IIIQ2012 |
16,220.7 |
2.9 |
0.1 |
2.5 |
|
IVQ2012 |
16,239.1 |
3.0 |
0.1 |
1.5 |
|
IQ2013 |
16,383.0 |
3.9 |
0.9 |
1.6 |
|
IIQ2013 |
16,403.2 |
4.1 |
0.1 |
1.3 |
|
IIIQ2013 |
16,531.7 |
4.9 |
0.8 |
1.9 |
|
IVQ2013 |
16,663.6 |
5.7 |
0.8 |
2.6 |
|
IQ2014 |
16,616.5 |
5.4 |
-0.3 |
1.4 |
|
IIQ2014 |
16,841.5 |
6.8 |
1.4 |
2.7 |
|
IIIQ2014 |
17,047.1 |
8.2 |
1.2 |
3.1 |
|
IVQ2014 |
17,143.0 |
8.8 |
0.6 |
2.9 |
|
IQ2015 |
17,305.8 |
9.8 |
0.9 |
4.1 |
|
IIQ2015 |
17,422.8 |
10.5 |
0.7 |
3.4 |
|
IIIQ2015 |
17,486.0 |
10.9 |
0.4 |
2.6 |
|
IVQ2015 |
17,514.1 |
11.1 |
0.2 |
2.2 |
|
IQ2016 |
17,613.3 |
11.7 |
0.6 |
1.8 |
|
IIQ2016 |
17,668.2 |
12.1 |
0.3 |
1.4 |
|
IIIQ2016 |
17,764.4 |
12.7 |
0.5 |
1.6 |
|
IVQ2016 |
17,876.2 |
13.4 |
0.6 |
2.1 |
|
IQ2017 |
17,977.3 |
14.1 |
0.6 |
2.1 |
|
IIQ2017 |
18,054.1 |
14.5 |
0.4 |
2.2 |
|
IIIQ2017 |
18,185.6 |
15.4 |
0.7 |
2.4 |
|
IVQ2017 |
18,359.4 |
16.5 |
1.0 |
2.7 |
|
IQ2018 |
18,530.5 |
17.6 |
0.9 |
3.1 |
|
IIQ2018 |
18,654.4 |
18.4 |
0.7 |
3.3 |
|
IIIQ2018 |
18,752.4 |
19.0 |
0.5 |
3.1 |
|
IVQ2018 |
18,813.9 |
19.4 |
0.3 |
2.5 |
|
IQ2019 |
18,950.3 |
20.2 |
0.7 |
2.3 |
|
IIQ2019 |
19,020.6 |
20.7 |
0.4 |
2.0 |
|
IIIQ2019 |
19,141.7 |
21.4 |
0.6 |
2.1 |
|
IVQ2019 |
19,254.0 |
22.2 |
0.6 |
2.3 |
|
IQ2020 |
19,010.8 |
20.6 |
-1.3 |
0.3 |
|
IIQ2020 |
17,282.2 |
9.6 |
-9.1 |
-9.1 |
Source: US
Bureau of Economic Analysis https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-10
provides the percentage change of real GDP from the same quarter a year earlier
from 1980 to 1993. There were two contractions almost in succession in 1980 and
from 1981 to 1983. The expansion was marked by initial high rates of growth as
in other recession in the postwar US period during which employment lost in the
contraction was recovered. Growth rates continued to be high after the initial
phase of expansion. The National Bureau of Economic Research
(NBER) dates a contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The expansion lasted until another contraction beginning in
IQ2001 (Mar). US GDP contracted 1.3 percent from the pre-recession peak of
$8983.9 billion of chained 2009 dollars in IIIQ1990 to the trough of $8865.6
billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm).
Chart I-10, Percentage Change of Real Gross Domestic Product
from Quarter a Year Earlier 1980-1993
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
The
experience of recovery after 2009 is not as complete as during the 1980s. Chart
I-11 shows the much lower rates of growth in the early phase of the current
expansion and sharp decline from an early peak. The US missed the initial high
growth rates in cyclical expansions that eliminate unemployment and
underemployment. There is sharp decrease of the rate of growth of GDP to 0.3
percent in IQ2020 and minus 9.1 percent in IIQ2020 relative to a year earlier (See Table 6 at https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf and entire
data in https://apps.bea.gov/iTable/index_nipa.cfm) in the
global recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart I-11, Percentage Change of Real Gross Domestic Product
from Quarter a Year Earlier 2007-2020
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-12
provides growth rates from a quarter relative to the prior quarter during the
1980s. There is the same strong initial growth followed by a long period of
sustained growth. The National Bureau of Economic Research (NBER) dates a
contraction of the US from IQ1990 (Jul) to IQ1991 (Mar) (https://www.nber.org/cycles.html). The
expansion lasted until another contraction beginning in IQ2001 (Mar). US GDP
contracted 1.3 percent from the pre-recession peak of $8983.9 billion of chained
2009 dollars in IIIQ1990 to the trough of $8865.6 billion in IQ1991 (https://apps.bea.gov/iTable/index_nipa.cfm).
Chart I-12, Percentage Change of Real Gross Domestic Product
from Prior Quarter 1980-1993
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
Chart I-13
provides growth rates in a quarter relative to the prior quarter from 2007 to
2020. Growth in the current expansion after IIIQ2009 has not been as strong as
in other postwar cyclical expansions. There is sharp contraction at SAAR of
minus 5.0 percent in IQ2020 and minus 31.7 percent IIQ2020 in the global
recession with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart I-13, Percentage Change of Real Gross Domestic Product
from Prior Quarter 2007-2020
Source: US Bureau of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
The Bureau
of Economic Analysis (BEA) (pages 1-2) explains growth of GDP in IIQ2020 as
follows (https://www.bea.gov/sites/default/files/2020-08/gdp2q20_2nd.pdf):
“Real gross domestic product (GDP) decreased at an
annual rate of 31.7 percent in the second quarter of 2020 (table 1), according
to the "second" estimate released by the Bureau of Economic Analysis.
In the first quarter, real GDP decreased 5.0 percent. The GDP estimate released
today is based on more complete source data than were available for the
"advance" estimate issued last month. In the advance estimate, the
decrease in real GDP was 32.9 percent. With the second estimate, private
inventory investment and personal consumption expenditures (PCE) decreased less
than previously estimated (see "Updates to GDP" on page 2).
The decrease in real GDP reflected decreases in PCE,
exports, nonresidential fixed investment, private inventory investment,
residential fixed investment, and state and local government spending that were
partly offset by an increase in federal government spending. Imports, which are
a subtraction in the calculation of GDP, decreased (table 2).
The decrease in PCE reflected decreases in services
(led by health care) and goods (led by clothing and footwear). The decrease in
exports primarily reflected a decrease in goods (led by capital goods). The
decrease in nonresidential fixed investment primarily reflected a decrease in
equipment (led by transportation equipment). The decrease in private inventory
investment primarily reflected a decrease in retail (led by motor vehicle
dealers). The decrease in residential investment primarily reflected a decrease
in new single-family housing..”
There are positive contributions to growth in IIQ2020 shown
in Table I-9:
·
Growth of national defense expenditures at 4.2 percent
·
Growth of government expenditures (GOV) at 2.8 percent
·
Growth of federal government expenditures (Federal GOV) at
17.6 percent
·
Contraction of imports, which are a deduction from growth, at
54.0 percent
There were negative contributions in IIQ2020:
·
Personal consumptions expenditures (PCE) contracting at 34.1
percent
·
Durable goods contracting at 1.3 percent
·
Nonresidential fixed investment contracting at 26.0 percent
·
Residential fixed investment contracting at 37.9 percent
·
Exports contracting at 63.2 percent
·
Inventory divestment subtracting 3.46 percentage points
The BEA finding accelerating factors:
- Contraction of imports, which are a deduction from
growth, at 54.0 percent after contracting at 15.0 percent in IQ2020
- Durable goods contracting at 1.3 percent after
contracting at 12.5 percent in IQ2020
- Government expanding at 2.8 percent after growing at
1.3 percent in IQ2020
- Federal government increasing at 17.6 percent after
increasing at 1.6 percent in IQ2020
The BEA finds offsetting decelerating
factors:
·
Personal consumption expenditure PCE contracting at 34.1
percent after contracting at 6.9 percent in IQ2020
·
Nonresidential fixed investment (NRFI) contracting at 26.0
percent after contracting a 6.7 percent in IQ2020
·
Exports contracting at 63.2 percent after contracting at 9.5
percent in IQ2020
·
State and local government expenditures contracting at 5.5
percent after growing at 1.1 percent in IQ2020
An important aspect of growth in the US is the
decline in growth of real disposable personal income, or what is left after
taxes and inflation, which decreased at the rate of 0.2 percent in IIIQ2013
compared with a year earlier. Contraction of real disposable income of 2.5
percent in IVQ2013 relative to a year earlier is largely due to comparison with
an artificially higher level in anticipations of income in Nov and Dec 2012 to
avoid increases in taxes in 2013, an episode known as “fiscal cliff.” Real disposable personal income increased 3.1
percent in IQ2014 relative to a year earlier and 3.6 percent in IIQ2014
relative to a year earlier. Real disposable personal income increased 4.3
percent in IIIQ2014 relative to a year earlier and 5.2 percent in IVQ2014
compared with a year earlier. Real disposable personal income grew 4.9 percent
in IQ2015 relative to a year earlier partly because of contraction of energy
prices and increased at 4.4 percent in IIQ2015. Real disposable personal income
grew at 4.0 percent in IIIQ2015 relative to a year earlier and at 3.0 percent
in IVQ2015 relative to a year earlier. Real disposable income grew at 2.5
percent in IQ2016 relative to a year earlier and at 1.6 percent in IIQ2016
relative to a year earlier. Real disposable income grew at 1.8 percent in
IIIQ2016 relative to a year earlier and at 1.8 percent in IVQ2016 compared with
a year earlier. Real disposable income grew at 2.1 percent in IQ2017 relative
to a year earlier and grew at 3.3 percent in IIQ2017 relative to a year
earlier. Real disposable income grew at 3.5 percent in IIIQ2017 relative to a
year earlier and grew 3.4 percent in IVQ2017 relative to a year earlier. Real
disposable income grew at 3.6 percent in IQ2018 relative to a year earlier and
grew at 3.4 percent in IIQ2018 relative to a year earlier. Real disposable
personal income grew at 3.6 percent in IIIQ2018 relative to a year earlier and
at 3.7 percent in IVQ2018 relative to a year earlier. Real disposable income
grew at 3.2 percent in IQ2019 relative to a year earlier and grew at 2.1
percent in IIQ2019 relative to a year earlier. Real disposable income grew at
1.8 percent in IIIQ2019 relative to a year earlier. Real disposable income grew
at 1.6 percent in IVQ2019 relative to a year earlier. Real disposable income
grew at 1.4 percent in IQ2020 relative to a year earlier. Real disposable
personal income grew at 11.9 percent in IIQ2020 relative to a year earlier. The
effects of financial repression, or zero interest, are vividly shown in the
decline of the savings rate, or personal saving as percent of disposable income
from 10.2 percent in IVQ2012 to 6.6 percent in IIIQ2013 and 6.3 percent in
IVQ2013. The savings rate eased to 7.3 percent in IQ2014, increasing to 7.4
percent in IIQ2014 and stabilizing to 7.4 percent in IIIQ2014. The savings rate
moved to 7.4 percent in IVQ2014, increasing to 7.7 percent in IQ2015. The
savings rate moved to 7.6 percent in IIQ2015, 7.7 percent in IIIQ2015 and 7.4
percent in IVQ2015. The savings ratio moved to 7.5 percent in IQ2016 and 6.6
percent in IIQ2016. The savings ratio eased at 6.3 percent in IIIQ2016 and at
6.4 percent in IVQ2016. The savings ratio reached 7.0 percent in IQ2017 and 6.7
percent in IIQ2017. The savings ratio eased to 6.7 percent in IIIQ2017 and 6.3
percent in IVQ2017. The savings ratio increased to 7.2 percent in IQ2018 and
7.6 percent in IIQ2018. The savings ratio eased to 7.5 percent in IIIQ2018 and
increased to 7.8 percent in IVQ2018. The savings ratio increased to 8.5 percent
in IQ2019, easing to 7.3 percent in IIQ2019. The savings ratio eased to 7.2
percent in IIIQ2019, stabilizing to 7.3 percent in IVQ2019. The savings ratio
increased to 9.6 percent in IQ2020. The savings ratio increased to 26.0 percent
in IIQ2020. Anticipation of income in IVQ2012 to avoid higher taxes in 2013
caused increases in income and savings while higher payroll taxes in 2013
restricted income growth and savings in IQ2013. Zero interest rates induce
risky investments with high leverage and can contract balance sheets of
families, business and financial institutions when interest rates inevitably
increase in the future. There is a tradeoff of weaker economy in the future
when interest rates increase by meager growth in the present with forced
consumption by zero interest rates. Microeconomics consists of the analysis of
allocation of scarce resources to alternative and competing ends. Zero interest
rates cloud he calculus of risk and returns in consumption and investment,
disrupting decisions that maintain the economy in its long-term growth path.
Table I-9, US,
Percentage Seasonally Adjusted Annual Equivalent Quarterly Rates of Increase, %
|
II Q2019 |
III Q2019 |
IV Q2019 |
IQ 2020 |
II Q2020 |
|
|
GDP |
1.5 |
2.6 |
2.4 |
-5.0 |
-31.7 |
|
PCE |
3.7 |
2.7 |
1.6 |
-6.9 |
-34.1 |
|
Durable Goods |
12.7 |
6.3 |
3.1 |
-12.5 |
-1.3 |
|
NRFI |
0.0 |
1.9 |
-0.3 |
-6.7 |
-26.0 |
|
RFI |
-2.1 |
4.6 |
5.8 |
19.0 |
-37.9 |
|
Net Exports
GS % Points |
-0.79 |
0.04 |
1.52 |
1.13 |
0.90 |
|
Exports |
-4.5 |
0.8 |
3.4 |
-9.5 |
-63.2 |
|
Imports |
1.7 |
0.5 |
-7.5 |
-15.0 |
-54.0 |
|
GOV |
5.0 |
2.1 |
2.4 |
1.3 |
2.8 |
|
Federal GOV |
9.2 |
4.8 |
4.0 |
1.6 |
17.6 |
|
National Defense |
4.4 |
5.6 |
6.6 |
-0.3 |
4.2 |
|
GDP Growth %
Points |
0.17 |
0.22 |
0.26 |
-0.01 |
0.20 |
|
State/Local
GOV |
2.6 |
0.6 |
1.5 |
1.1 |
-5.5 |
|
∆ PI % Points |
-0.97 |
-0.09 |
-0.82 |
-1.34 |
-3.46 |
|
Final Sales
of Domestic Product |
2.5 |
2.7 |
3.2 |
-3.6 |
-28.5 |
|
Gross
Domestic Purchases |
2.2 |
2.5 |
0.8 |
-5.9 |
-30.8 |
|
Prices Gross |
2.2 |
1.3 |
1.3 |
1.4 |
-1.5 |
|
Prices of GDP |
2.5 |
1.5 |
1.4 |
1.4 |
-2.0 |
|
Prices of GDP
Excluding Food and Energy |
2.4 |
1.7 |
1.3 |
1.7 |
-1.3 |
|
Prices of PCE |
2.5 |
1.4 |
1.5 |
1.3 |
-1.8 |
|
Prices of PCE
Excluding Food and Energy |
2.1 |
1.9 |
1.3 |
1.6 |
-1.0 |
|
Prices of
Market Based PCE |
2.1 |
1.1 |
1.5 |
1.3 |
-1.0 |
|
Prices of
Market Based PCE Excluding Food and Energy |
1.6 |
1.6 |
1.3 |
1.7 |
0.1 |
|
Real
Disposable Personal Income* |
2.1 |
1.8 |
1.6 |
1.4 |
11.9 |
|
Personal
Saving As % Disposable Income |
7.3 |
7.2 |
7.3 |
9.6 |
26.0 |
Note: PCE:
personal consumption expenditures; NRFI: nonresidential fixed investment; RFI:
residential fixed investment; GOV: government consumption expenditures and
gross investment; ∆ PI: change in
private
inventories; GDP - ∆ PI: final sales of domestic product; PP: percentage
points; Personal savings rate: savings as percent of disposable income
*Percent change
from quarter one year ago
Source: Bureau
of Economic Analysis
https://apps.bea.gov/iTable/index_nipa.cfm
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
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