Gene Epstein explains in his latest “Economic Beat” column for Barron’s that recent changes in the way the federal government calculates economic growth do little to improve our current picture.
The U.S. Economy got a boost last month from the Bureau of Economic Analysis, but not one that will show up in jobs or manufacturing output. The agency upwardly revised gross domestic product going back to 1929, revisions that incorporate new ways of defining what goes into GDP. The revisions do have some effect on the slope of the long-term trend, but not by nearly enough to revise away recent weakness.
Real GDP growth for 1929-2012 was boosted by 0.1 percentage point; for 2002-12 by 0.2 percentage point; and for 2009-12 by 0.3 percentage point. But the differential boosts barely altered long-term patterns.
Growth averaged 3.3% from 1929 through 2012, a period that includes the Great Depression; and it averaged 1.8% from 2002 through 2012, a period that includes the Great Recession. But from 2009 through 2012, which mainly covers the expansion since the Great Recession, growth averaged just 2.4%. The first half of 2013 has done nothing to improve that pattern, with growth running at an annual rate of 1.4%. …
… WHY THE POOR PERFORMANCE? A major clue was offered by the Small Business Optimism Index for the third quarter, released last week by the National Federation of Independent Business. The third quarter reading was 94.1, which was still signaling recession in this sector. During previous economic expansions—the quarterly index goes back to the mid-1970s—the readings averaged 100 or higher.
In the salty words of NFIB chief economist Bill Dunkelberg, “Unfortunately, nothing is being done to allay the most pressing concerns identified by job creators—dealing with rising health-insurance costs, regulations, tax complexity, energy costs, and general economic uncertainty….We are in the ‘tankeroo’—not sinking, but trying to stay afloat.” Such views are not likely to be retroactively revised.
