Month: January 2014

by Zach Bethune, Thomas Cooley and Peter Rupert

GDP Report

The BEA announced that real GDP increased at a saar of 3.2% for 2013 Q4. The report did little to change anyone’s mind about about the current state of the economy. The recovery continues but at a very moderate pace. Overall, it appears a solid report…although there are always things to quibble about. For the year, GDP increased at an anemic 1.9% pace, following 1.8% in 2011 and 2.8% in 2012. This can be seen in graph below which plots GDP for 10 years after the beginning of the last 5 business cycles. It is clear that the rate of growth of GDP is currently lower than in any of the previous 4 recoveries. Additionally, you can see that the average length between recessions is around 9 years (or 36 quarters). That means that the economy typically expands for 9 years before another contraction. Currently, the US is 6.25 years into its ‘recovery’ from the 2007 recession and is not close to the rate of growth in previous expansions.

Consumption growth picked up, 3.3% in the fourth quarter (the highest gain since 2010 Q4), contributing the lion’s share to overall GDP growth at 2.26 percentage points. Private domestic investment grew at a 3.4% clip, a large decline from its third quarter growth of 17.2% which can be contributed to a slowdown in both residential and non-residential structures. Government consumption expenditures and gross investment declined 4.9%. The government shutdown played a role there.

Private investment has finally risen above its pre-recessionary level in 2007 Q4. Although the housing sector has shown signs of recovery over the past year, residential investment is still far below the peak in 2007 Q4 and it declined again in the fourth quarter.

Thia is an economy that continues to recover but is hampered in part by the lack of vitality elsewhere in the world economy.  We will focus on Europe in our next post.

Anemic job growth, declining labor force participation and declining average weekly hours of work all point to a labor market the continues to struggle for good omens. The comment from the BLS Employment Situation for December is that total nonfarm payroll employment “edged” up +74,000. Evidently the synonym for edge is “barely increased at all and was much lower than anticipated.”  See the first estimate in the Net Employment Change chart. The Establishment data shows employment for November was revised up from 203,000 to 241,000, while the final estimate for October employment remained at 200,000. Wrapping up 2013, job growth averaged 182,000 per month, almost exactly the same as in 2012 (183,000 per month).

Private employment was up +87,000 while Government jobs declined by -13,000. The largest gains overall came in Private Service Producing, +90,000; with Retail (+55,300) and Wholesale (+15,400) Trade leading the way. Construction employment fell -16,000.

The Household Survey indicates that the combination of a decline in the labor force -347,000 (also a decline in the labor force participation rate to 62.8 from 63.0), and a decrease in the number of people unemployed, -490,000, gave rise to a decline in the unemployment rate to 6.7% from 7.0%. The unemployment rate one year ago was 7.9%. So, while this bellwether statistic has shown marked improvement over the past twelve months, the labor market still seems troubled. Initial claims have bounced.  Of course, the extremely cold weather throughout much of the country has certainly affected many of the variables in question over the past month.

The average length of the workweek declined slightly and average earnings increased by 1.8% – less than in recent months.