Friday, October 29, 2010

Real GDP: Still 0.8% below pre-recession levels

by Bill McBride on 10/29/2010 01:06:00 PM

Real GDP is 0.8% below the pre-recession peak, so real GDP would have to grow at a 3.1% annualized pace in Q4 for the economy to be back at the pre-recession peak.

That is unlikely since growth in personal consumption expenditures (PCE) will probably slow in Q4, and the contribution from the change in private inventories will likely be much smaller or negative in Q4.

Probably the earliest the economy will be back to pre-recession levels for GDP would be in Q1 2011 and that requires a 1.6% annualized growth rate over the next two quarters. It might even take until Q2 2011 (my current forecast).

Note: The following graphs are all constructed as a percent of the peak in each indicator. This shows when the indicator has bottomed - and when the indicator has returned to the level of the previous peak. If the indicator is at a new peak, the value is 100%.

GDP Percent Previous Peak Click on graph for larger image in new window.

This graph is for real GDP through Q3 2010.

Real GDP is still 0.8% below the pre-recession peak.

Based on the June FOMC forecasts, real GDP would be close or above the pre-recession peak by now. So clearly those forecasts will be revised down next week.

And GDP has performed better than other indictors.

Personal Income less Transfer Payments The second graph is for real personal income less transfer payments (also released today for Q3 as part of the GDP report).

Real personal income less transfer payments is still 5.5% below the pre-recession peak. Much of the growth in PCE over the last year has come from transfer payments - this includes people taking Social Security early, extended unemployment benefits, and other assistance programs - and it will be some time before this indicator returns to pre-recession levels.

And two more graphs to show two key monthly indicators:

Industrial Production This graph is for industrial production through Septmember.

Industrial production has been one of the stronger performing sectors because of inventory restocking and some growth in exports. However industrial production is still 7.5% below the pre-recession peak, and it appears export growth has slowed, and the inventory cycle is almost over.

One of the surprises in the GDP report today was the strong contribution from changes in private inventories. That will probably slow over the next few quarters - and may even turn negative. So it will probably be some time before industrial production returns to pre-recession levels.

Employment The final graph is for employment. This is similar to the graph I post every month comparing percent payroll jobs lost in several recessions.

Payroll employment is still 5.6% below the pre-recession peak. And with below trend GDP growth, payroll employment growth will likely remain sluggish.

Last 10 Posts