Separating Hyperplanes

Some pessimism for your macroeconomic optimism

Matthew Martin 12/23/2014 09:15:00 AM

Matt Yglesias is cheering the strong real GDP in second and third quarters this year (these numbers were recently revised upwards from already above-forecast numbers). In second quarter the economy grew at a seasonally-adjusted annualized rate of 4.6%--high by anyone's definition--and was followed by 5% growth in third quarter.

That sounds like good news, but I'm not yet impressed. That's because the economy actually shrank -2.1% in first quarter. Over the previous 4 quarters, then, the economy is giving very mixed signals, and has only actually grown a little under 2.7 percent. Quarterly declines in seasonally-adjusted real GDP that don't coincide with recessions are exceptionally rare. There have been only two in the entire post-world-war record. The previous one was first quarter 2011--it's clear that the post Great Recession economy is quite different than the economy that preceded it.

At anyrate, here's seasonally adjusted real GDP with today's revisions, over the past 3 years:

When the decline in Q1 2014 is factored in, we are barely above trend now, even with the revisions, which represents pretty mediocre growth.

I'm not trying to argue that the economy isn't getting better, just that recent GDP performance is not particularly promising considering that it actually shrank, quite a lot, just two quarters ago!