Home > Business Cycles, Economic Growth, Recession > Economic Growth Since the Last Recession

Economic Growth Since the Last Recession

First quarter 2014 economic growth was recently revised downward to -1.0 percent. The media response seemed to focus entirely on the effects of seasonality, with the argument that negative real growth was caused by the harsh winter that recently ended. This seasonality story obviously has some truth to it but the more compelling data is not one single data point for real growth. It is much more important to examine the trend in real growth because this is much more revealing about future living standards in the United States.

The last U.S. recession ended in June 2009 (got to nber.org for business cycle dates). In the table below, there is data on real economic growth at quarterly annualized rates taken from the government agency that reports NIPA (National Income and Product Accounts) data, bea.gov. The table suggests a pattern that should be a concern for all members of society.

Year Quarter Growth Rate
2009 III 1.3
IV 3.9
2010 I 1.6
II 3.9
III 2.8
IV 2.8
2011 I -1.3
II 3.2
III 1.4
IV 4.9
2012 I 3.7
II 1.2
III 2.8
IV 0.1
2013 I 1.1
II 2.5
III 4.1
IV 2.6
2014 I -1

The growth rates in the table reveal an erratic and historically low recovery from the last recession. The average growth rate in the table is about 2.2 percent. In the century ending with the onset of the last recession, economic growth averaged 3.0 percent. While 2.2 percent may not seem very different than 3.0 percent, over long periods of time, this is an enormous difference.

Students in introductory economics courses learn how to calculate the values of economic magnitudes as they grow over time. Suppose real GDP is unity and we want to know what it will be 100 years from now. The table below provides the answers.

Growth Rate Real GDP
2.2 8.8
3 19.2

At a 2.2 percent growth rate, real GDP will be almost 9 times higher after 100 years. If the growth rate is 3.0 percent, real GDP will be a bit more than 19 times greater! What seem to be small differences in growth rates have very large cumulative effects over time.

The bottom line here is that there is good reason for us to be concerned about the apparently lower level of economic growth observed since the end of the last recession. If this trend persists, living standards in the U.S. will be much lower than they could be if the U.S. were to grow as it has in the past. Lower economic growth will be detrimental to all U.S. citizens and suggests that we ought to be asking hard questions about what, if anything, can be done to raise real growth in the U.S.


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Economics One

A blog by John B. Taylor

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