The Bureau of Economic Analysis released a third quarter GDP number, covering the months of July, August and September, of 2.5%. This is a high among the three quarters so far this year, and moves GDP back toward respectability. The threat of a double-dip recession was overhyped.
And yet think about the jobs numbers for these three months. Based on the latest numbers, in those three months the economy gained 127,000, 57,000 and 103,000 jobs. That’s an average of around 95,000 jobs per month, well below the increase in population. This is actually in line with a 2.5% GDP increase. That level of GDP cannot generate job growth that will bring down the unemployment rate. It’s a number that allows you to tread water. Similarly, the weekly jobless number is just stalled out around 400,000 first-time jobeless per week. This may be OK for an economy at 5.6% unemployment. At 9.1% it’s a bit of a disaster.
Economist Dean Baker notes via email that non-residential investment led the way to the growth, accounting for 1.54 of the 2.5% increase, or well over half. Consumption growth and final demand (or total sales) increased, and inventory more than anything else weighed down growth. The fact that business investment keeps growing puts the lie to the notion that regulatory uncertainty is to blame for sluggish growth. Businesses are investing in equipment and software. The problem is still a lack of sales that can get the economy to trend growth.
This number is a stepping stone, but only if fiscal policy supports more growth. The number is still below the 3% required to keep pace with the population, and we need to go well above that if we’re going to bring the unemployment rate down. As Baker writes:
The economy is settling into a pattern of sustained weak growth [...] Given the depth of the downturn, this pattern of weak growth is grossly inadequate. At this pace the economy will never return to full employment since it is just keeping pace with the growth of the labor force. However, because many analysts had raised concerns of a double-dip, this growth is likely to be viewed as good.
Exactly. More from Neil Irwin.
UPDATE: This chart from Brad Plumer says it all. At 2.5% growth, the US basically never closes the output gap, which means it never returns to full employment.