First Year of U.S. Economic Recovery Was Weaker Than Estimated

The first year of the recovery from the worst U.S. recession in the post-World War II era was even weaker than previously estimated, evidence of the extent of the damage wreaked by the economic slump, revised figures show.

Gross domestic product grew 2.5 percent in the 12 months after the contraction ended in June 2009, compared with the 3.3 percent gain previously reported, the Commerce Department said today in Washington. The government also revised down corporate profits and personal income for each of the past three years.

The update did little to change the contour of the recession or the rebound that followed even as the magnitude of movements shifted. The report also showed the world’s largest economy expanded at a 1.5 percent annual rate in the second quarter, down from a 2 percent rate in the first three months of the year.

The revisions “are not going to shape the story about the recession or subsequent expansion,” Brent Moulton, associate director for national economic accounts at the Commerce Department’s Bureau of Economic Analysis, told reporters this week.

The figures showed the economy grew 5.8 percent from the second quarter of 2009 through last year’s fourth quarter, 0.4 percentage point less than the 6.2 percent gain previously reported. The reduction was paced by lowered estimates for the strength of the rebound in business investment in things like equipment and computer software.

Okun’s Law

The shallower recovery deepens the mystery of the breakdown of Okun’s Law, named for late Yale University professor Arthur Okun, which describes a statistical relationship between GDP growth and changes in the jobless rate.

The rule of thumb holds that for every percentage point that year-over-year growth exceeds the trend rate -- which Federal Reserve policy makers peg at between 2.3 percent and 2.6 percent -- unemployment drops by 0.5 percentage point.

The jobless rate fell 1 percentage point, going from 9.5 percent in June 2009 to 8.5 percent in December 2011, even as GDP grew at an average 2.3 percent annual rate.

Fed Chairman Ben S. Bernanke is among those who have taken note of the disparity, saying in a March 26 speech that improving jobs numbers “seem somewhat out of sync with the overall pace of the economic expansion.”

The revisions also pushed back the period when the economy moved from recovery to expansion, which is the point at which the volume of all goods and services produced exceeded the pre- recession peak. It now began in the fourth quarter of last year, rather than in the prior three months.

Smaller Bite

The recession took a slightly smaller bite out of the economy, the report also showed. GDP shrank 4.7 percent from December 2007 to June 2009, 0.4 percentage point less than the 5.1 percent previously estimated. Even with the change, the slump remained the deepest and longest in the post-war era.

In 2009, the GDP contracted 3.1 percent rather than shrinking 3.5 percent. It grew 2.4 percent in 2010, rather than 3 percent, and expanded 1.8 percent last year, 0.1 percentage point more than previously estimated.

On a quarterly basis, the first six months of 2010 showed the biggest cuts to growth. The economy teetered even closer to the brink of another slump in the first quarter of 2011, growing at a 0.1 percent rate, down from the 0.4 percent previously estimated.

More recent data turned more positive, with the second and fourth quarters of last year showing the biggest boosts to the previously released numbers. The economy grew at a 4.1 percent rate from October through December of 2011, the best performance in almost six years.

Profits, Earnings

Companies and workers fared worse over the past three years than previously estimated. Before-tax corporate profits adjusted for the value of inventories and capital depreciation were revised down over the period by a combined $233.2 billion, mainly reflecting lower earnings at financial institutions.

After-tax personal income was revised down by $66.4 billion, or 0.6 percent, in 2009; by $52.6 billion, or 0.5 percent, in 2010; and by $44.2 billion, or 0.4 percent, last year. The primary reason was smaller dividend receipts.

The diminished gains in earnings contributed to lowering the saving rate, which stood at 4.2 percent in 2011, down from a prior estimate of 4.6 percent.

Price measures were little changed from 2009 through 2011, the new figures showed. The so-called PCE price index, which tracks consumer spending, rose at a 1.5 percent annual rate over the period, the same as previously estimated.

The revisions are part of the government’s annual updates derived from broader, more complete, surveys. Data back to the first quarter of 2009 were subject to revisions.

To contact the reporter on this story: Carlos Torres in Washington at ctorres2@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

Bloomberg reserves the right to edit or remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.