August 15, 2002

The Course of the Recession

Last month's revisions to the NIPA produced a three-quarter decline in real GDP in 2001, instead of the preliminary one-quarter decline. Nevertheless, real GDP declined by only 0.6 percent before beginning its bounce-back in the fourth quarter of 2001. But the most interesting series remains the unemployment rate, still trending upward as real GDP grows less rapidly than productivity plus the trend increase in the labor force, and thus the proportion of America's potential workers left idle continues to grow.

GDP Unemployment

Charts from the Wall Street Journal.

Posted by DeLong at August 15, 2002 04:22 PM | TrackBack

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By Paul Krugman --

The U.S. economy's "potential output" — what it could produce at full employment — has lately been growing at about 3.5 percent per year, thanks to the productivity surge that began in the mid-1990's. But according to the revised figures released a couple of weeks ago, actual growth has fallen short of potential for seven of the last eight quarters.

The conventional view is that we had a brief, shallow recession last year, and that recovery has begun. But the output gap tells a different story: Two years ago we went into an economic funk, and it's not over. In a way the whole double-dip controversy is a red herring; the real question is when G.D.P. will start growing fast enough to narrow the output gap. And so far there's no sign of that happening.

Posted by: on August 16, 2002 10:03 AM

What are the odds that the recent numbers have been fudged and low-balled so that the numbers that come out just before the election will be higher than otherwise and create an economic buzz the week before Election Day? What are the odds that last years numbers were "revised" to fit the political argument that Bush was handed a recession? The whole thing, to me, smells way too much like the Election Night 2000 CNN interview with the Bush's when the state of Florida had already been called for Gore, but they were sure that Bush had the state because they were privy to numbers that the media didn't have access to. It also reminds me that this bunch is willing to play fast and furious with information and spin regardless of the effect on the markets - as witnessed by the "terror alerts" back in May having been done for no reason other than to deflect the "what did they know" media buzz at the time (notice how all of *that* went away real quickly). Anyway, I would take any numbers put out by the Bushies as nothing more than shameless partisan spin.

Posted by: Andy X on August 16, 2002 10:55 AM

Though Krugman agrees that productivity has been growing and should continue to grow at a healthy pace, Krugman pointed out to Charlie Rose that such growth in productivity will not assure a quick economic recovery. Krugman wishes more monetary stimulus was in the works.

Posted by: on August 16, 2002 12:42 PM
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