Wednesday, May 4, 2011

Even If the Recent Slowdown in Real GDP Growth Were a Blip

David Leonhardt is rightfully concerned about the state of our economy and reports:

For the second straight year, the recovery seems to be at risk of stalling. The economy grew at an annual rate of only 1.8 percent last quarter — eerily similar to the 1.7 percent growth last spring, just when job growth started slowing down ... White House advisers and Ben Bernanke, the Federal Reserve chairman, argue that the bad news is a merely a blip caused by bad weather, a temporary cut in military purchases and other one-time factors. They may be right, too. Stock market investors certainly share their optimism: the Standard & Poor’s 500 index is near a postrecession high.

For the entirety of 2010, real GDP growth barely undone the decline in real GDP for 2009. And with zero growth for 2008, our economy is around 10% below potential GDP. So even if this were a blip and we returned to growth rates around 3% or 4%, we will be far below full employment for quite a while.

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