Economic Expansion in U.S. Has Been Stronger, More Irregular
The recovery from the worst U.S. recession in the post-World War II era has been stronger than previously estimated. It’s also been more uneven.
The world’s largest economy grew at a 2.3 percent annualized rate from the end of economic slump in mid 2009 through last year, compared with the 2.1 percent pace previously reported, revised figures from the Commerce Department showed today in Washington. The update also recast gross domestic product to include spending on things such as entertainment and research and development, adding $526 billion to the value of goods and services produced in 2012.
“Intellectual property has become increasingly important in the last few years,” Brent Moulton, associate director for national economic accounts at the Commerce Department’s Bureau of Economic Analysis, told reporters this week. “Despite the conceptual changes, we have not rewritten economic history.”
The comprehensive revision to GDP comes as Federal Reserve officials, who wrap up a two-day meeting today, try to assess the strength of the economy in order to plot the course of monetary policy.
Some of the strongest periods in the economic rebound are even firmer, and some of the weaker are more negative, including one quarter of contraction in early 2011 of a magnitude that is rare to find outside of recessions.
Today’s report also showed the world’s largest economy grew at a 1.7 percent annualized rate from April through June following a 1.1 percent gain in the first three months of the year. The first-quarter’s reading was revised down from a previously reported 1.8 percent advance.
For all of 2012, GDP was revised to show a 2.8 percent increase compared with a prior estimate of 2.2 percent. The boost was concentrated in the first quarter, which now shows a 3.7 percent gain rather than 2 percent. The subsequent three periods were all revised down, culminating in a fourth-quarter gain of 0.1 percent that confirmed growth stalled as federal military spending slumped and company stockpiling slowed.
The revisions and latest readings failed to solve the disconnect between an improving job market and an economy in the doldrums.
Payrolls climbed by 202,000 a month on average from January through June, up from 180,000 in the second half of 2012, according to the Labor Department. Such gains are typically linked with GDP increasing close to 3 percent, about double what the government data showed today, say economists at UniCredit Group and Deutsche Bank Securities Inc.
While GDP grew at an unrevised 1.8 percent in 2011, the quarterly breakdown was a mirror image of 2012.
The year ended on a stronger note than previously estimated, with the economy growing at a 4.9 percent pace in the fourth quarter of 2011, the strongest for the expansion so far. By contrast, GDP contracted at a 1.3 percent annualized rate in the first three months of the year rather than the previously estimated 0.1 percent increase as consumer spending showed a smaller advance and inventory gains slackened. The rate of decline was worse than any quarter during the 2001 recession.
Just as the expansion has been a bit stronger, the economic slump that began in December 2007 and ended in June 2009 was less severe. From peak to trough, GDP shrank 4.3 percent compared with the 4.7 percent drop previously on the books. It still marks the worst contraction since quarterly tallies began in 1948.
Today’s update also included the most significant reclassification of the components of GDP since 1999, when spending on computer software was first included in business investment rather than an expense. The addition of research and development, some forms of entertainment, transfer fees related to home sales and a new treatment of pensions boosted the level of GDP by about the size of Pennsylvania’s economy.
While increasing the size of the nation’s economy, the expanded components of GDP had little influence on the quarterly percentage changes in growth, economists at the BEA said this week. These comprehensive revisions happen about every five years and affect the data as far back as 1929. The average gain in GDP over the past eight decades was revised up by 0.1 percentage point to 3.3 percent.
The changes in growth derived from broader, and more complete, annual surveys of economic activity added another $33.8 billion to the level of GDP in 2012 to make the economy $559.8 billion larger at $16.2 trillion.
The new treatment of pensions, which will be counted as they are accrued rather than as they are paid out, added $12.6 billion to GDP in 2012 and boosted the saving rate as the benefit increased personal income. The rate averaged 4.7 percent from 2002 through 2012, a percentage point higher than previously estimated.
The revisions had little influence on inflation, with the GDP price index rising 1.6 percent each year on average from 2009 through 2012, compared with the 1.8 percent increase previously on the books. The Fed’s preferred price measure tied to consumer spending patterns averaged gains of 2 percent, the same as before the update.
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