GDP estimate: Economic recovery more whimper than roar

Raymond Keating
Raymond Keating

The U.S. Bureau of Economic Analysis released its first estimate of third quarter gross domestic product, the broad measure of goods and services produced in the country.

You know you’re stuck in a bad economy when third quarter real growth of 2.9 percent is the fastest experienced over the past two years. A headline in the Wall Street Journal went so far as to declare: “U.S. Economy Roars Back…”

Roars? Really? Perhaps some perspective is in order.

Make no mistake, 2.9 percent growth means the U.S. economy is still badly underperforming. Real GDP growth has averaged 2.1 percent during this recovery, far short of the 1956 to 2016 average of 3.1 percent and less than half the
4.3 percent real rate prevailing during other periods of recovery and expansion.

During a typical recovery and expansion period,  the U.S. economy should be growing at better than 4 percent. But we saw growth of only 2.9 percent in the third quarter. And over the past two years, growth has averaged a woeful 1.9 percent. That’s simply pathetic.

As for the third quarter data, there were two big points worth highlighting.

First, troubles on the private investment front continued. Real gross private domestic investment grew by a mediocre 3.1 percent, which was the first quarter of growth since the third quarter of last year. Unfortunately, though, much of this growth in investment was about inventories. Real fixed investment actually declined 0.6 percent, with nonresidential (or business) investment inching up by 1.2 percent and residential investment falling 6.2 percent. That was the second consecutive quarter of big declines in residential investment, showing that housing continues its long struggles.

Second, the big plus in the data came on the exports front. After 18 months of poor export performance — with exports declining in four of the previous six quarters — real exports in the third quarter jumped 10 percent. That was the strongest growth since the fourth quarter of 2013.

Given the formidable shortfall of where the U.S. economy should be in terms of exports as well as lost small business exporters, let’s hope this is the start of a long-run turnaround in exports.

Since 2007, the U.S. economy has suffered through its longest underperforming economy since, arguably, the Great Depression. Real growth from the start of the last recession has averaged a mere 1.3 percent.

Unfortunately, slow growth, or worse, will persist until we see a dramatic change in federal public policies, including tax relief and reform, regulatory relief and reform, leadership on advancing free trade and reining in federal spending and debt.