With the Second Estimate of Q3 GDP, even with the downward revision from 2.5% to 2.0%, the economy has set a new high in real GDP, leaving behind us a trough of 15 quarters — nearly four years. But there are other measures of the economy that still have some distance to travel before setting new highs.
The first chart is a look at Real GDP since 1950 with recessions highlighted. As we can see, at present, more than two years after the end of the last recession, real GDP has finally (barring a downward revision next month) topped the previous all-time high set in the last quarter of 2007. The last recession officially began in December of that year.
My preferred GDP metric is the per-capita variant. I take real GDP and divide it by the mid-month population estimates from the Census Bureau, which has reported this data from 1959 (hence my 1960 starting date). By this measure, Q3 2011 GDP is 3.02% off its peak.
For most people, GDP is an economic abstraction that has little meaning. Employment levels, on the other hand, are a more compelling measure of the economy. Here, then, is a chart of total nonfarm employment, which peaked in January 2008, a month into the last recession. As of last month, nonfarm employment was a painful 4.70% off the peak.
Let’s close with an overlay of these three metrics.
The recession of 2007-2009 was by far the most savage economic decline over the time frame of these charts. Prior to the last recession, real GDP hit a new peak within a quarter or two of the official recession end. Per capita real GDP usually lagged an additional quarter before hitting its post-recession peak; the one exception was in 1990-1991, when the per capita variant required an extra three quarters to set a new peak. Employment has historically been slower to hit new highs following recessions.
The so-called double-dip recession of 1980-1982 had a non-recessionary interlude of four quarters. All three of our indicators hit new peaks within in the second quarter after the first of the double dips. Where are we today? We’re now in the ninth quarter after the last recession. Real GDP (again, barring a downward revision next month) has now set a new peak. But real GDP per capita is less than halfway from its trough to a new peak, and, 28 months after the recession ended, nonfarm employment is about 25% of the way from its trough to a new peak.
Since the beginning of quarterly GDP data, which has been tracked since 1947, the U.S. has never had an official recession without having achieved new highs in Real GDP and nonfarm employment. Let’s hope that record continues. But ultimately the debate over recession boundaries is a minor quibble in the ongoing economic reality of what economist Kenneth Rogoff calls The Second Great Contraction.