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Contrasting GDP Growth With Job Loss

Chair of the Council of Economic Advisers Christina Romer made this statement on the GDP increase of 3.5% in the third quarter:

“Data released today by the Commerce Department show that real GDP grew at an annual rate of 3.5 percent in the third quarter of the year. This is in stark contrast to the decline of 6.4 percent annual rate just two quarters ago. Indeed, the two-quarter swing in the rate of growth of 9.9 percentage points was the largest since 1980. Analysis by both the Council of Economic Advisers and a wide range of private and public-sector forecasters indicates that the American Recovery and Reinvestment Act of 2009 contributed between 3 and 4 percentage points to real GDP growth in the third quarter. This suggests that in the absence of the Recovery Act, real GDP would have risen little, if at all, this past quarter.”

“After four consecutive quarters of decline, positive GDP growth is an encouraging sign that the U.S. economy is moving in the right direction. However, this welcome milestone is just another step, and we still have a long road to travel until the economy is fully recovered. The turnaround in crucial labor market indicators, such as employment and the unemployment rate, typically occurs after the turnaround in GDP. And it will take sustained, robust GDP growth to bring the unemployment rate down substantially. Such a decline in unemployment is, of course, what we are all working to achieve.”

Romer is correctly skeptical that we have turned the corner, while obviously needing to tout the numbers from a political standpoint. The fact that as much as half of the growth came from the cash for clunkers program is a testament to that (from the report: “Motor vehicle output added 1.66 percentage points to the
third-quarter change in real GDP after adding 0.19 percentage point to the second-quarter change.”) In addition, the new jobless claims remain high, at over 500,000 a week, well more than what would be needed for the job numbers to actually reverse itself. We are in a “less bad” mode at this point, but that’s not necessarily going to come as comfort to anyone facing this labor market.

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David Dayen

David Dayen