The Real Story Behind Mitsubishi Financial's Chart Declaring Economic Expansion

Last week Business Insider posted the following graph from BTMU (Bank of Tokyo-Mitsubishi) which indicates that the recovery phase of the economic cycle, measured by real GDP has been completed and we are now entering the expansion phase.  This is an entirely misleading conclusion, and to be fair to BTMU, they indicate that they have reservations about recovery being completed in a meaningful way because of what they called the “output gap” of the U.S. which will take many years to close to what would have occurred without The Great Recession.

First, here is the real GDP graphic: 

It has taken 3 years for real GDP to regain 2Q/2008 levels.  This is much longer than for other recent recessions.  During that time the U.S. population has grown by more than 8 million.  It is only reasonable that aggregate metrics like GDP be normalized to population.  After all, is $1 trillion of GDP for a population of 1 million represent as much value as it would for 0.75 million?  Obviously not.  

The following table shows the real GDP data and U.S. population each quarter for 2007-2010, inclusively.

Note:  The GDP data in the above table is the

An unusually low GDP deflator is “inflating” real GDP.

Nominal GDP is growing at half the historic Rates (30-year and 60-year). Normalized to population we are only half way to recovering the previous GDP level. “Main Street” factors, such as employment and median personal income levels, remain depressed. On many U.S. Main Streets it is questionable if the recession itself is even over.   Related Articles  Normalized GDP – The “Real” Growth by John Lounsbury

Personal Income and Expenditures Show Joe Sixpack Sliding Back into Recession  by Steven Hansen

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