Current GDP Growth Isn't Anything Special
Real gross domestic product has now grown at an estimated annual rate of 3 percent or more in the U.S. for two quarters in a row (3 percent in the third quarter, 3.1 percent in the second). President Donald Trump and his eldest son seem to think -- or at least seem to want others to think -- that this is the fastest growth the nation's economy has seen in many years.
It is not: In the second and third quarters of 2014, for example, real GDP growth was 4.6 percent and 5.2 percent, respectively. But that spurt didn't last, with growth averaging just 2.2 percent a year over the course of this expansion so far. Three percent growth would be better than that, for sure, but two quarters don't tell us much. Quarterly GDP growth rates are volatile, meaning that it can be hard to detect signals in the quarterly noise:
One way around this is to look at growth over the previous four quarters instead of just one:
That makes things a bit smoother and clearer, especially since the mid-1980s, when the U.S. economy settled into what became known as the Great Moderation. The idea that smarter central bank policy and changes in the structure of the economy had subdued volatility took quite a few dings during the subsequent Great Recession, but now we seem to be back at it with another long, slow economic expansion. By all appearances this expansion is continuing under Trump, and getting back up to speed after a near-stall in late 2015 and early 2016. But "speed" in this case is just 2.3 percent growth over the past four quarters -- about average for the expansion, and well below the growth rates of the 1990s and before.
Still, looking back four quarters is, well, backward-looking. It would be nice to have a way to cut through the noise of the quarterly growth rates without sacrificing the timeliness. Jason Furman, the final chairman of the White House Council of Economic Advisers in the Barack Obama administration, has a suggestion: the change in real final sales to private domestic purchasers, 1 which "takes out volatile components like inventories." Four Federal Reserve economists, writing in 2015, called this metric "a better predictor than GDP itself of GDP growth for the next quarter." Here's what it looks like:
And here it is zoomed in to focus on the current expansion:
By that metric, economic growth in the third quarter was just OK, at 2.2 percent. Which is better than not OK! Also, given that GDP numbers get revised again and again as more data becomes available, one shouldn't read too much into recent trends anyway. But there's really no sign from the GDP data yet that the slow-growth era is ending.
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That's what the Bureau of Economic Analysis calls it in Table 1.4.1 of the National Income and Product Accounts. Others, including Furman, use the shorter "private domestic final purchases," or PDFP.
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