Economic Growth In The Third Quarter Revised Upwards To 1.6%

by: John M. Mason


Economic growth on a year-over-year basis has been revised upwards for the third quarter from 1.5 percent to 1.6 percent.

Actually, year-over-year economic growth in the third quarter has recorded another decline as it was 2.2 percent in the third quarter of 2015 and 2.9 percent in 2014.

Overall, the compound rate of growth of the economy since the third quarter of 2009 is only 2.15 percent, pointing out that long-term growth isn't what it once was.

Real Gross Domestic Product rose in the third quarter of 2016, up 1.6 percent from the third quarter of 2015. The first revision of the third quarter numbers showed that growth was 0.1 percent higher than the 1.5 percent figure that was reported last month.

Analysts still looking for "green shoots" highlighted the quarter-to-quarter rate of increase, which was 0.78 percent, or multiplied by 4 to annualize the number, was 3.1 percent.

Yes, economic growth seems to be picking up somewhat, but in my mind, we can't get to enthusiastic about the increase because, more exuberant growth is just not there.

Furthermore, the figures for industrial production and for capacity utilization, although improving, still paint a pretty tepid picture of the recovery.

And, if one looks at numbers from the past three years, we see that the 1.6 percent rate of year-over-year rate of growth posted in the third quarter of 2016 are down from the 2.2 percent rate of year-over-year growth recorded for the third quarter of 2015 and the 2.9 percent rate of year-over-year growth recorded for the third quarter of 2014.

Note too, that the compound annual rate of growth of real GDP since the third quarter of 2009 is only 2.15 percent.

You say that the labor market is getting stronger and wages seem to be increasing.

My response to that is that the unemployment rate is so low because one has to go back to the late 1970s to get a labor force participation rate as low as it is today. The unemployment rate is so low because the size of the active labor force is suffering from other factors like technology change.

Also, I think it is important to point out that we may be in an age where real economic growth is not as robust as we once thought it should be.

The well-respected economist Robert Gordon in his book "The Rise and Fall of American Growth" points to the fact that up until 1970, the United States was experiencing a special situation where that resulted in a growth of the United States of around 3.2 percent.

Economic growth since 1970 has not been close to this figure and growth has slowed even further since the early 2000s, especially after the Great Recession.

Further research seems to be confirming this conclusion. For example, a newly released book by the economist Marc Levinson, "An Extraordinary Time," supports the work of Mr. Gordon.

These economists point to things such as the growth rate of labor productivity, which has been close to zero since the end of the Great Recession as evidence that the underlying growth rate of the US economy may not be what it once was.

If this conclusion is true, then we need to stop looking for "green shoots," evidence that the economy is getting back to 1960s' rates of growth and start looking at things that will get the focus businesses back on efficiency and productivity.

The facts seem to be that the economy needs to be restructured. Just trying to stimulate economic growth through "goosing up" aggregate demand is not going to work. I believe that we need to accept this fact.

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