Stabilizing or flatlining?

Among the latest signs of recovery are positive GDP growth rates for Germany and France in the second quarter of this year.  The media, apparently tired of reporting bad news, are trumpeting this as sensational news, which it really isn’t.

Both of those countries saw real GDP growth of 0.3% (or about 1.2% annualized), which is better than negative, but less than half of what normal GDP growth looks like. (The average for the last 30 years is 2.9% per year.) And in a real, robust recovery the economy is supposed to grow faster than normal; it has to, to get back to its potential. If GDP in those two countries had fallen by 0.1%, they would still be considered to be in recession — should so much importance be attached to a difference of 0.4% in a three-month period?

Actually, minus 0.1% was the GDP growth rate of the sixteen Euro-using nations as a whole in the last quarter, the European statistical office announced yesterday.  And the 27-nation European union’s economy shrank by 0.3%.  And the U.S. economy, as announced a few days ago, shrank by 1.0% in the last quarter.  A ways to go before it’s safe to pronounce recovery as imminent, I think.  But “McLaughlin Group”-style predictions, no matter how inane or inaccurate, are the lifeblood of the punditocracy.

To return to an old hobbyhorse of mine: The media and most people today employ way too narrow a definition of recession, i.e., “two or more consecutive quarters of declining GDP growth.” That is not the “official” definition, just the most common one. That would be a better definition of contraction, an actual shrinking of the economy. A full recovery, not merely an end to negative GDP growth, is what restores the economy to health. To cite an example of an awful time that at least had better terminology, the Great Depression lasted from mid-1929 to early 1941, although the economy was actually contracting for only about five of those years (1929-33, 1937-38). But it was a clearly a depression throughout, with high unemployment and huge amounts of slack in the economy, and nobody disputed that. Again, it is good that we have a president who says that in his mind the recession won’t be over until we stop shedding jobs, but more properly, I think, the recession won’t be over until the unemployment rate is back to normal levels, say around 5-6%.

To be sure, there are some positive signs of recovery out there, like the just-reported substantial rise in U.S. exports, which suggests that our trading partners are doing well enough to buy our stuff, and the recent uptick in the Gallup consumer confidence survey, but reports of the recession’s demise still seem premature.

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