Third-Quarter GDP Revised Down…Again

The final report on third-quarter GDP showed that the economy grew by a lackluster 2.2% during July, August and September. The original report said 3.5%, then it was lowered to 2.8% and now we’re at 2.2%.
That’s just not very good at all. The economy will have to grow at 3% or more to create new jobs to the empty the ranks of the 15 million unemployed. Four percent or more would be even better. The good news is that the third quarter was a long time ago and we’re about to close out the fourth quarter. Usually whenever a recession ends, we see a “boom quarter,” where GDP jumps by 5% or 6%. Hopefully, one will be coming soon.
Here’s a chart I like to look at every so often. This is real GDP divided by a trend line of about 3.08% a year. That’s been about the historic growth rate over the last 40 years. I then set the average value to 1.0. In other words, I’m trying a quick-and-dirty way to see where we are compared with GDP potential. Bear in mind, this method is very dangerous because it assumes past GDP performance will continue. Still, I think it’s interesting to see where we stand today compared with the past few decades.

Notice that this chart shows how meager the recover was from 2003 to 2007.

Posted by Eddy Elfenbein on December 22nd, 2009 at 9:43 am

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