As we continue the week in charting the economy, let’s take a look at GDP, or gross domestic product. You hear mention in the media all the time of GDP as being the major macro-indicator of economic growth. This is because GDP is simply the sum of all economic activity in a given country, state or whatever entity is being examined.
Each quarter, the U.S. Department of Commerce’s Bureau of Economic Analysis releases a measurement of the preceding quarter’s GDP, including the percent change from the prior period. In the chart below, I found historical quarterly numbers at the BEA’s website. I plotted this data on a simple line chart and saw pretty much what I thought I would find. As you can see, the bottom falls out during the Great Recession period. So, how do we liven up the chart? First, I shaded the period encompassing the official beginning and end points of the recession — it now stands out. Then, I drew a line from the beginning of the recession to the end of the chart at the +2.5% level on the chart. Economists are generally saying that due to the huge amount of jobs lost during the past recession, GDP must grow at 2.5% or more in order to create job growth. Basically, economists are saying, that we’re in such a deep hole that quarterly GDP growth between 2 to 2.5% is just enough to maintain the current status quo – which is a national unemployment still – painfully – near 10%.
I think the story of the “job growth line” is better understood with a picture:
Now, going all the way back to 2003, you can see that GDP growth of 2.5% appears to better than average. In fact, to make a real dent in unemployment, we need GDP growth of probably 4% or more which is even more rare.
Keep this in mind as politicians generally refuse to work together to approach U.S. economic and tax policy rationally. While Columbus and Washington are more concerned with ideological purity on the right or the left, this recovery is barely registering above the “job growth line.”