A Look at Annual Real GDP Growth

The chart above shows annual real GDP growth (BEA data here) from: 1) 1930 to 1932 (-25.7% cumulative decline) and 2) 2007 to 2010, assuming: a) fourth quarter growth this year of 3.5% and no revisions to the Q3 estimate of 3.5%, and b) real GDP growth next year of 2.5% (WSJ consensus forecast).

Under those fairly realistic assumptions there would be a decline in real GDP over the "Great Recession" in only one year (2008), preceded by one year of below average growth of 0.40% (2007), and followed by a return to average growth of 2.8% in the next year (2010). This of course also assumes no "double dip recession" next year.

But assuming the assumptions above hold, wouldn't the endless comparisons of recent economic conditions to the conditions of the Great Depression seem kind of silly? After all, the three annual consecutive declines in real GDP growth of -8.62% in 1930, -6.50% in 1931 and -13.1% in 1932 were far, far worse than a single one-year decline in real economic output of -2.4% in 2009.

Update: Just to be really optimistic for a change, if Brian Wesbury is right and Q3 real GDP is later revised up to 4% (from 3.5%), and if Scott Grannis is correct that today's ISM rebound results in Q4 real GDP being as high as 5%, the annual decline for 2009 real GDP would be -2.25% instead of -2.4% as shown in the graph.

Comments

[Archman Inv...:]

The author wrote:
<<Update: Just to be really optimistic for a change, if Brian Wesbury is right and Q3 real GDP is later revised up to 4% (from 3.5%), and if Scott Grannis is correct that today's ISM rebound results in Q4 real GDP being as high as 5%, the annual decline for 2009 real GDP would be -2.25% instead of -2.4% as shown in the graph.>>

What have I been saying all along? Look who the author is best friends with? Brian Wesbury. Scott (Calafia beach pundit) Grannis.
You might as well throw Larry Krudlow in there too, cause he is best friends with him as well. What do we know about all these men? Their job is to rationalize every single bit of news as good news.

Fact: The latest GDP report was the result of government spending, in an ongoing process of mortgaging at least the next 3 generations worth of debt. Without the massive amount of government spending going on for the past year, GDP would be negative 4% every quarter.

If the government had spent nothing over the past year on the problems in this country, and just let the process work itself out the following would have happened:

A real God awful recession, maybe even depression would have taken place. It would have reset not only the economic values in this country enabling this country to rebuilt and prosper over the next 100 years, but also would have reset the values of the people in this country. We would actually have to think and move away from quantity to quality. Move away from such meaningless nonsense such as their I-Phones, and how many times a day they post on their FaceBook pages about the meaningless things in their lives, such as why they are feeling tired today or when pathetic women write about how they cannot understand why their kids are brats, etc. (Hint: try spending less time on Facebook trying to appear important and more time with your kids)

Right now there are some individual businesses that are doing well, mostly very small firms that aren't completely reliant on the overall economy, but most businesses are getting by only by cutting costs and cutting staff. Real revenue is still going down, a lot.
As per the WSJ this morning, AIG has now missed 4 dividend payments to the gov't yet the stock has been a bottle rocket. So wait, they cannot pay the gov't yet people are putting money this thing?
Also, business bankruptcies are now reaching an all time high and increasing even faster.

Again, these are facts, I present these items to those who are not brainwashed by the likes of Dr. Perry and his friends on Wall Street.

Remember, these people have one job and one job alone:
To keep telling you what you want to hear, not what you need to hear.

Nov 03 06:56 AM

[marketman54:]

I don't understand how there can be any GDP growth.

It was written that 70% of our GDP was consumer driven. You remove 26 million consumers due to unemployment and take the rest of all consumers spending less money and there is NO WAY it can grow.

I think our government is making up numbers and then comes back and adjusts them and no one seems to care!!!

Nov 03 07:03 AM

[MikeD71:]

"if Brian Wesbury is right"


I am Batman...

Nov 03 08:16 AM

[zagrebzagreb:]

Agreed with the comment about gov't spending and GDP "growth"....

How can we have intelligent conversations about macro economics without looking at the gov't debt that is driving the larger economy?

Frankly, this is as stupid as an unemployed person claiming "growth" just because he maxed-out his VISA with a cash advance.

Cash for Clunkers was estimated to account for roughtly 1% of GDP growth alone. That is all debt, and is not sustainable... How many different ways does this need to be said?

Nov 03 09:15 AM

[Wildebeest:]

The numbers have been discussed thoroughly in many articles on SA. Consumer spending has been propped up by eg. cash for clunkers. And don't forget that government expenditures feature in GDP, e.g by definition if government spending were to increase greater than investment and consumer spending declines then GDP increases. The focus on GDP ignores how you get there. In science or engineering terms we need a "path dependent GDP."

Another way of looking at it is this: suppose you are insolvent, or close to it, but you get given a credit card with a large credit limit. You go and spend (consume) and your personal GDP has just risen. But are you actually better off than you were before you got the card? Short term I guess yes if you were hungary and had no shelter, but longer term you are worse off (but you can always default on your loan I guess). The way to fix your personal economy is to *earn* money and slowly dig yourself out of a hole rather than borrow it.

(of course earning requires a job. Good luck with that in the present climate)


On Nov 03 07:03 AM marketman54 wrote:

> I don't understand how there can be any GDP growth.
>
> It was written that 70% of our GDP was consumer driven. You remove
> 26 million consumers due to unemployment and take the rest of all
> consumers spending less money and there is NO WAY it can grow.<br/>
>
> I think our government is making up numbers and then comes back and
> adjusts them and no one seems to care!!!

Nov 03 09:22 AM

[John Lounsbury:]

marketman54 - - -

Your comment is very astute. I have read that the first estimate for 3Q has a 4% contribution to GDP from government spending. That means the private sector GDP change was -0.5%. I can assure you that I find no evidence that the government is making up numbers, but quite a number of people could make a good living sorting out what the numbers really mean.

Unfortunately, a lot of people that we depend on for information don't delve beyond the headlines.


On Nov 03 07:03 AM marketman54 wrote:

> I don't understand how there can be any GDP growth.
>
> It was written that 70% of our GDP was consumer driven. You remove
> 26 million consumers due to unemployment and take the rest of all
> consumers spending less money and there is NO WAY it can grow.<br/>
>
> I think our government is making up numbers and then comes back and
> adjusts them and no one seems to care!!!

Nov 03 11:34 PM