We’re all very excited that the GDP numbers that came in this morning didn’t tank. At 2.5%, GDP came in right in line with expectations. And even better, personal consumption beat expectations of 1.9%, coming in at 2.4%.
The problem is that GDP isn’t really the number that the average American feels — at least not consciously. That number is unemployment (or employment, if you’re a glass half-full kind of person), and 2.5% may not cut it to get us to full employment fast enough.
Here’s a chart that the CBO made back in August (via macroblog). It shows our economy’s output gap under various GDP growth scenarios. What we want to do is have our actual output meet or exceed our potential output as soon as possible. That’s how we can get America working again.
The CBO estimates that if we get GDP growing at 3.5% (or 3.6% as they were projecting we could do between 2013 and 2016), we could have the economy meet its potential by 2017.
As you can see from the curve, 2.5% doesn’t get us there anytime soon. Sadly, it looks like something PIMCO’s Mohamed El-Erian wrote about recently:
America’s economy today risks stall speed. Specifically, the question is not whether it can grow, but whether it can grow fast enough to propel a large economy that, according to the US Federal Reserve, faces “balance-sheet deleveraging, credit constraints, and household and business uncertainty about the economic outlook.” And, remember, it is just over a year since certain US officials were proclaiming the economy’s “summer of recovery” – a view underpinned by the erroneous belief that America was reaching “escape velocity.”
So yeah, no time for celebrating just yet.