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The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.


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March 17, 2010


Bad by any measure

A few weeks back, The Economist published a story touting the well-known fact that the "American economy just had its worst decade since the 1930s." Whether looking at gross domestic product (GDP), consumption, income, or nonfarm payrolls, the decade from 2000 to 2010 generally looks bad from an economic perspective. During this decade, of course, the nation has experienced two recessions—the latter being the most severe since the Great Depression. (See the graphs below, reproduced from the February 25 article in The Economist titled "Back to The Crash.")

031710a
(enlarge)

But given that decades are rather arbitrary economic demarcations, why not examine other time periods? So here's another approach: Using the yearly trough-to-trough periods according to National Bureau of Economic Research (NBER) recession dating, the charts below have replicated the ones shown above from The Economist. (Note: The NBER only designates troughs by quarter. So for a trough ending in first or second quarter, the calendar year in which the trough falls is designated as the "trough year." If the trough falls in third or fourth quarter, the following calendar year is the trough year. For these calculations, we use annual data instead of quarterly because pre-1947 quarterly data are unavailable.) This simple exercise sheds some interesting light on the recent experience of the U.S. economy—namely, that it was bad by any measure.

Looking at real GDP growth over these periods, the 2002–09 era looks very weak, with only 1946–49 having a lower average annual rate of growth (in these years, GDP averaged an annual decline of 2.01 percent). Average annual real GDP growth was 1.72 percent for the 2002–09 period, much lower than the average of 3.97 percent for the previous 10 trough-to-trough periods.

031710b
(enlarge)

Similarly for real consumption and income growth, the 2002–09 period is also bleak. Average annual consumption and income growth had averaged 3.81 percent and 3.79 percent, respectively, going into 2002. But during this recent trough-to-trough period, income growth was very weak at 1 percent, with only the 1946–49 period doing worse (–1.09 percent). But consumption growth in 2002–09 was the lowest on record, averaging only 2.12 percent growth annually.

Another interesting observation is the spread between average annual consumption and income growth. The 1946–49 and 2002–09 periods are where it's the largest, at 5.9 percent and 1.1 percent, respectively. These large imbalances could possibly reflect growth in household debt and/or lower saving rates, as consumption growth far outstrips income growth. Indeed, debt grew and savings declined notably during 2002–09.

031710c
(enlarge)

Lastly, a look at the nonfarm payroll growth confirms the most recent trough-to-trough period as one of extraordinary weakness. Given that data prior to 1939 are unavailable, the previous eight bottom-to-bottom periods saw average annual growth of 13.5 percent in payrolls. But for 2002–09, average annual payroll growth of 0.44 percent reaffirms the so-called "jobless recovery" from the 2001 recession and the large decline in payrolls during this current recession. No other previous period comes close.

031710d
(enlarge)

By Andrew Flowers, economic research analyst, at the Atlanta Fed

March 17, 2010 in Business Cycles , Data Releases | Permalink

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Comments

I would prefer to see the average annual growth over these expansions rather than the total growth you show. it makes for a more meaningful comparison.

Posted by: spencer | March 17, 2010 at 06:15 PM

The 1946-49 comparison mentioned twice is problematic. In some ways, this was an extremely successful period. The real measures were hammered by extremely high inflation attending the lifting of price controls, some commodity speculation, and mostly pent-up demand chasing consumer goods. Incomes, of course, dropped from the everybody-employed war years because women left the labor force. Eight million men and women were cashiered out of the armed forces and into a transitioning industrial base without the long-lasting high unemployment we have today.

Many if not most economists expected a return to the Great Depression after the war, or at least the dysfunction of the period following the First World War. Did not happen.

In some ways that period was the inverse of the 00s, a time when the worst was predicted and a transition to stability and prosperity happened. The most recent decade was a time when big things were promised and a crash was delivered.

Naked data points absent history does not tell a very good story or give a very good understanding.

Posted by: Alan Harvey | March 18, 2010 at 01:08 AM

I am betting on mean reversion!

Posted by: silly things | March 18, 2010 at 01:23 AM

Great article. Sometimes analyses like this one done by the Economist can be misleading as in this case it is based on data broken up arbitrarily into decades. But, as you clearly point out, this is not one of those times. Interesting stuff, thanks.

Posted by: der Tillman | March 18, 2010 at 09:51 AM

I think you will find that the domestic production of oil and demographic trends in the "baby boom" will reflect US performance for nearly a century in the post WW2 era. The 40' 50's 60's reflect increasing oil production and relative self sufficiency. The dwindling production results in trade deficits which over time reduce economic performance as can be seen in the 70s 80s 90s. In addition govt grew into more and more a share of the economy from 1940's-late 60's. The 00's are just the start of the new very low real growth trend around 1.5-2.5%--Japan like. >10% of GDP deficits with anemic growth are not a promising start. The debt growth to GDP growth numbers are appalingly bad; apparently, rather than finding ways of improving this we will just try to leverage up again (and lever a little more) until it seems the system breaks down again. Insourcing and outsourcing has hurt domestic workers so emplyment growth collapses as the trade defict and public deficit rises. As the baby boomers enter retirement age they will not retire due to a lack of meaningful pensions and savings. These boomers will become a drag as a 60+ year old is generally not as productive as a younger worker and their health care consumption will grow much higher and be a severe drag on the economy. There is a day of reckoning coming that each political party is trying to pawn off on the other but both have their fingerprints all over the failure.

Finally, the economics discipline has not come to grips with exponential growth in finite systems; there seems to be an assumption that a technofix or subsitution will just pick up when we hit the wall. On many fronts there are "limits to growth" and economists are just not as savy as they think they are about these real issues that cannot be "modeled" away.

Posted by: MK Hubbart | March 20, 2010 at 10:47 PM

The dwindling production results in trade deficits which over time reduce economic performance as can be seen in the 70s 80s 90s. In addition govt grew into more and more a share of the economy from 1940's-late 60's. The 00's are just the start of the new very low real growth trend around 1.5-2.5%--Japan like. >10% of GDP deficits with anemic growth are not a promising start. The debt growth to GDP growth numbers are appalingly bad; apparently, rather than finding ways of improving this we will just try to leverage up again (and lever a little more) until it seems the system breaks down again. Insourcing and outsourcing has hurt domestic workers so emplyment growth collapses as the trade defict and public deficit rises. As the baby boomers enter retirement age they will not retire due to a lack of meaningful pensions and savings. These boomers will become a drag as a 60+ year old is generally not as productive as a younger worker and their health care consumption will grow much higher and be a severe drag on the economy. There is a day of reckoning coming that each political party is trying to pawn off on the other but both have their fingerprints all over the failure.

Posted by: sesli sohbet | April 05, 2010 at 12:56 PM

The 1946-49 comparison mentioned twice is problematic. In some ways, this was an extremely successful period. The real measures were hammered by extremely high inflation attending the lifting of price controls, some commodity speculation, and mostly pent-up demand chasing consumer goods. Incomes, of course, dropped from the everybody-employed war years because women left the labor force. Eight million men and women were cashiered out of the armed forces and into a transitioning industrial base without the long-lasting high unemployment we have today.

Many if not most economists expected a return to the Great Depression after the war, or at least the dysfunction of the period following the First World War. Did not happen.

In some ways that period was the inverse of the 00s, a time when the worst was predicted and a transition to stability and prosperity happened. The most recent decade was a time when big things were promised and a crash was delivered.

Naked data points absent history does not tell a very good story or give a very good understanding.

Posted by: Sesli | July 05, 2010 at 04:29 PM

The dwindling production results in trade deficits which over time reduce economic performance as can be seen in the 70s 80s 90s. In addition govt grew into more and more a share of the economy from 1940's-late 60's. The 00's are just the start of the new very low real growth trend around 1.5-2.5%--Japan like. >10% of GDP deficits with anemic growth are not a promising start. The debt growth to GDP growth numbers are appalingly bad; apparently, rather than finding ways of improving this we will just try to leverage up again (and lever a little more) until it seems the system breaks down again. Insourcing and outsourcing has hurt domestic workers so emplyment growth collapses as the trade defict and public deficit rises. As the baby boomers enter retirement age they will not retire due to a lack of meaningful pensions and savings. These boomers will become a drag as a 60+ year old is generally not as productive as a younger worker and their health care consumption will grow much higher and be a severe drag on the economy. There is a day of reckoning coming that each political party is trying to pawn off on the other but both have their

Posted by: Power ixir | February 18, 2011 at 10:15 AM

Sometimes analyses like this one done by the Economist can be misleading as in this case it is based on data broken up arbitrarily into decades. But, as you clearly point out, this is not one of those times.

Posted by: Just Information | November 22, 2011 at 11:21 PM

The dwindling production results in trade deficits which over time reduce economic performance as can be seen in the 70s 80s 90s. In addition govt grew into more and more a share of the economy from 1940's-late 60's. The 00's are just the start of the new very low real growth trend around 1.5-2.5%--Japan like. >10% of GDP deficits with anemic growth are not a promising start. The debt growth to GDP growth numbers are appalingly bad; apparently, rather than finding ways of improving this we will just try to leverage up again

Posted by: porno izle | August 17, 2012 at 06:09 PM

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