The United States' economy is recovering, but from a recession that was deeper than first estimated.
The National Bureau of Economic Research marked the recession as beginning in December 2007 and ending in June 2009. Real gross domestic product (GDP), the broadest measure of a nation’s economic health, declined by a total of approximately 5 percent over this 18-month period.
In the two years since, the economy has grown by about the same amount, 5 percent. Yet, we are not even back to where we started.
In its latest report, the U.S. Bureau of Economic Analysis (BEA) estimated that the U.S. economy grew at an annual rate of only 1.3 percent in the second quarter of 2011. This rate was below expectations of 1.9 percent growth, and previous quarterly data was revised downward.
The Bureau regularly revises the GDP data using new information collected about economic activity throughout the country. In July of each year, the BEA incorporates newly available data and checks its estimating methodologies. In the latest revisions, for example, the BEA included new tax data from the Internal Revenue Service.
This year’s revisions were pretty dramatic. The percent change in real GDP was revised down 0.3 and 0.9 percentage points for 2008 and 2009, respectively.
Perhaps not surprisingly, in both these years a major reason for the slower rate of economic growth was lower consumption on the part of households. Personal consumption spending makes up more than two-thirds of the U.S. GDP, and consumers are cutting back dramatically in the face of a very weak job market.
The U.S. Bureau of Labor Statistics reported that nonfarm payroll employment between May and June of this year was essentially unchanged following gains of 215,000 per month from February through April. The employment level in most industries was changed while government employment continued to trend down as state and local governments cut workers.
This national trend is evident here in Idaho.
In the June report, Idaho’s unemployment rate was unchanged at 9.4 percent. The private sector increased 1.6 percent, but this rate is well below the average for the month of 2.3 percent that the state experienced before the recession.
Government jobs in Idaho are declining faster than expected. According to the Idaho Department of Labor, the government work force usually declines in the summer months, but the 2 percent decline for June 2011 is nearly twice the average.
Given the need to cut spending and reign in debt at all levels, the government will not be a source for future job growth. The weak labor market will hold back income growth and consumer spending until private employers have better incentives to invest and hire.
Paradoxically to some, the planned reduction in government spending will do just that. If there is any real reduction in the government’s role in the economy, businesses can expect lower taxes in the future and will invest more today.
The economic hole was deeper than we thought. We will climb back when the outlook for business improves.
pcrabb@nnu.edu
