Latest GDP numbers illustrate missed opportunity

Raymond Keating
Raymond Keating

When it comes to evaluating economic data, expectations play a big part in the final assessment of how good or bad the numbers turn out. That’s certainly the case with third quarter data released by the U.S. Bureau of Economic Analysis for gross domestic product, the broad measure of goods and services produced in the country.

Real annual GDP growth came in at 2.8 percent for the third quarter, compared to 2.5 percent in the second quarter and 1.1 percent in the first.

As widely reported, market expectations were in the neighborhood of 2 percent. For good measure, that

2.8 percent came in ahead of the average growth rate of

2.3 percent during the current recovery.

So, if one’s expectations were formed by recent economic activity, then you’re probably somewhat pleased with that 2.8 percent rate of real growth.

It must be kept in mind, however, that this recovery ranks as one of the worst on record, and 2.8 percent growth is hardly anything to celebrate from that perspective.

Keep in mind that real annual GDP growth since 1950 has averaged 3.4 percent. During recovery and growth periods, real growth has averaged about 4.4 percent to 4.5 percent. Consider, for example, that growth during the 1983-1989 recovery and growth period, real GDP averaged

4.4 percent.

Consider that if real GDP growth had merely averaged 3.4 percent growth rate in 2010, 2011 and 2012, real GDP (2009 dollars) for 2012 would have come in at roughly $15.939 trillion versus the actual $15.471 trillion. So, just over a period of three years, the U.S. effectively lost $466 billion compared to where we should be.

If real growth over 2010 to 2012 had averaged 4.4 percent annually, real GDP would have been nearly $1 trillion dollars (real 2009 dollars) higher in 2012.

To extend this examination, consider that real GDP growth averaged a mere 1.8 percent annually from 2001 to 2012. Again, if real GDP had managed to grow at an average 3.4 percent, real GDP (again in 2009 dollars) would have been $3.3 trillion higher than it was in 2012.

Even worse, prior to 2001, real GDP growth averaged 3.7 percent annually. Again, if the U.S. economy had managed that average growth rate over the past dozen years, real GDP would have been $4 trillion higher in 2012.

Pick your poison, but in the end, these are breathtaking levels of lost output and income. Those losses, of course, tie in to millions of lost jobs.

No, 2.8 percent growth simply doesn’t cut it.