The GDP Recovery

http://norris.blogs.nytimes.com/2011/01/28/the-american-economy-bigger-than-ever/

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"Great works are performed, not by strength, but by perseverance." (Samuel Johnson)

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Let's look at some good news while Nouriel Roubini is over in Davos depressing everybody. Floyd Norris uses "We're back" to describe the official numbers for 4th quarter GDP growth in the U.S.

As measured by GDP in the fourth quarter of 2010, the American economy grew to an annual pace of $13.383 trillion (measured in 2005 dollars). This number is better than the $13,364 trillion posted for the fourth quarter of 2007 - the peak before the recession.

Setting aside other issues for the moment, Norris points out that the severe 1973-5 recession ended when the economy returned to peak output in the eighth quarter after the recession began. This time it took 12 quarters.

Fourth quarter 2010 vs fourth quarter 2007:

Personal consumption expenditures, up 1%.

Private investment, down 18.1%.

Government spending, up 5.3%.

The decline in investment is largely caused by the collapse of the construction industry. Businesses are spending 16.6% less for industrial equipment. Businesses are also sitting on record amounts of cash.

The increase in government spending is entirely at the federal level. State and local spending has declined in the fourth quarter, and is 2.3% below where it was four years ago.

Norris adds: "The Fed's easing makes more money available to businesses if they wish to borrow it. Tax cuts do the same for individuals and companies. The extent to which "they" seek to spend it, and on what, will determine how fast we recover."

How about the rest of the world?

Measured by GDP, the U.S. recovered more rapidly than Japan or any major member of the European Union (Australia never had a recession, and Canada and Switzerland exceeded their old highs in the third quarter). Britain is still 4.4% below its GDP peak.

Through the third quarter, these are the changes from "peak" GDP in each country:

Japan, -3.4%
France, -1.9%
Germany, -1.8%
Italy, -5.4%
Netherlands, -2.8%
Spain, -4.1%
Portugal, -1.5%

And, countries that need international assistance:

Greece, -7.2%
Iceland, -14.1%
Ireland, -12.4%

So, by one measure, "We're back." But, as any examination of the "jobs" trend lines will show, the most recent jobless recovery took from 2001 to 2005 before it returned to pre-recession numbers. And, the jobs trend line for this "recovery" is so much lower than the last one that it's "arc" does not even look like it will return to a pre-recession level anytime soon.

We recall one estimate by Roubini that it could be as long as 2018 before a complete recovery occurs - and that's if there is no double-dip in housing. The most recent numbers from the national Case-Shiller home price index are actually back down again - not a good sign.

But, we love "GDP" and we're glad to see those numbers up!