Dean Baker: The US economy is not yet on the road to recovery

[marmar]

from the Guardian UK:





The US economy is not yet on the road to recovery
Getting the economy growing at a more rapid pace will inevitably require another round of stimulus from the government

Dean Baker
guardian.co.uk, Monday 2 August 2010 19.00 BST


The 2.4% GDP growth figure reported for the second quarter caused many economists to once again be surprised about the state of the US economy. It seems that most had expected a higher number. Some had expected a much higher number. It is not clear what these economists use to form their expectations about growth, but it doesn't seem that they have been paying much attention to the economy. For those following the economy, a weak second quarter growth number was hardly a surprise.

As a basic way to assess growth, economists often separate out final demand growth from GDP growth. The difference between GDP growth and final demand growth is simply inventory accumulation. If the rate of inventory accumulation accelerates then GDP growth will exceed final demand growth. If the rate of inventory accumulation slows, then GDP growth will be less than the rate of final demand growth. If there is no change in the rate at which inventories are accumulating, then GDP growth will be equal to final demand growth.

The economy has been going through a classic inventory cycle in the last five quarters. Inventories had been shrinking rapidly in the second quarter of 2009. This is standard in a recession as firms look to dump a backlog of unsold goods. Inventories shrank less rapidly in the third quarter, which means they added to growth. Inventories started growing again in the fourth quarter, and growing rapidly in the first two quarters of 2010. Inventories added considerably to growth in these quarters, making GDP growth considerably more rapid and erratic than the growth of final demand.

The growth in final demand over the last four quarters has been very even and slow. It has averaged 1.2% over this period with a peak growth rate of 2.1% in the fourth quarter of 2009. Growth was just 1.3% in the most recent quarter.

The numbers of final demand should be of great interest since it is unlikely that inventories will provide any substantial boost to growth in future quarters. The second quarter rate of inventory accumulation was already quite fast, so future inventory figures are as likely to come in lower as higher. This means that GDP growth over the next few quarters is likely to be close to the rate of growth of final demand. ................(more)

The complete piece is at: http://www.guardian.co.uk/commentisfree/cifamerica/2010/aug/02/us-economy-road-to-recovery

[ixion]

1. If the stimulus money goes into the same, small, select group of accounts as the last one

it's going to do anything except make that group of folks more wealthy.

[Tierra_y_Libertad]

2. "The best-laid schemes o' mice an' men Gang aft agley,"

[EC]

3. There it is in a nutshell

Republicans are so stuck in their Supply Side economics...they always fail on the Demand Side...