Note from dshort: This morning we learned that the 2nd Estimate for Q3 real GDP came in below forecast at 2.0%, a downward revision from the Advance Estimate 2.5%.
The revision did not significantly change the long term view of real per-capita GDP, but it did increase the recession warning implicit in the latest real GDP year-over-year per cent change, now at 1.5% from 1.6% after the Advance Estimate.
My monthly updates on GDP and its revisions feature column charts illustrating real GDP. These have the advantage of highlighting the patterns of change and the correlation between negative GDP and recessions.
Real GDP Per-Capita Growth
For a better understanding of the historical context, here is a chart of real GDP per-capita growth since 1960. For this analysis I’ve chained in current dollars for the inflation adjustment. The per-capita calculation is based on the mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947).
The population data series is available in the FRED series POPTHM. I used quarterly population averages for the per-capita divisor. Recessions are highlighted in grey. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale.
The real per-capita series gives us a better understanding of the depth and duration of GDP contractions. As we can see, since our 1960 starting point, the recession that began in December 2007 is associated with a deeper trough than previous contractions, which perhaps justifies its nickname as the Great Recession.
In fact, at this point, 13 quarters beyond the 2007 GDP peak, real GDP per capita is as far off the all-time high as the trough that followed the Oil Embargo in 1974-1974. We can also see that the recovery from the last recession has flattened out over the past three quarters.
Year-Over-Year (YoY) GDP per cent Change and Current Recession Risk
Economists vary widely in their opinions about the present-day recession risk. The official call on recessions, of course, is the domain of the National Bureau of Economic Analysis, which makes the determination on recession start and end dates several months — sometimes more than a year — after the fact.
The next chart shows the YoY change in real GDP from the earliest quarterly data in 1947. I’ve again highlighted recessions. The red dots show the YoY real GDP for the quarter in which the recession began. The blue dot shows the latest YoY real GDP. Note: Unlike the previous chart, this one does not include a per-capita adjustment.
As the chart illustrates, the latest YoY real GDP, at 1.5% is down from last quarter’s 1.6% (to two decimal points it’s 1.51% versus 1.63% for Q2). At 1.5% the YoY number is below the level at the onset of all the recessions since quarterly GDP was first calculated — with one exception: The six-month recession in 1980 started in a quarter with lower YoY GDP (1.4% versus today’s 1.5%). And only on one occasion (Q1 2007) has YoY GDP dropped below 1.6% without a recession starting in the same quarter. In that case the recession began three quarters later in December 2007.
In my weekly updates on the ECRI recession watch, I’ve been referencing latest the Hoisington Investment Management quarterly report, which has a forecast for Q4 negative growth accompanied by an interesting analysis that warrants close reading. Here is the opening paragraph and a snippet near the conclusion:
“Negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012.
Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income….
“In summary, the case for an impending recession rests not only on cyclical precursors evident in productivity, real wages, and inventory investment, but also on the dysfunctionality of monetary and fiscal policy.”
The full report in PDF format is available at the Hoisington website.
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