Structural Slowdown and Cyclical Downturn in the US Economy
The Combination of Structural Slowdown and Cyclical RecessionBy John Ross28 August 2010Summary
This article focuses on evidence confirming long-term slowdown, as well as cyclical recession,of the US economy as indicated in the latest release of the 2
quarter 2010 US GDP figures.
As widely reported, the second estimate of 2
quarter 2010 US GDP revised annualised USgrowth down from 2.4% to 1.6% - i.e. US GDP grew by 0.4% during the 2
quarter. The mainchanges compared to the first GDP estimate, in constant and annualised 2005 price terms,were a downward revision of net exports by -$19bn, due primarily to an upward re-estimation of imports by $14bn, and a revision of inventories downwards by -$13bn. Fixedinvestment remained essentially unchanged compared to the earlier first GDP estimate,with a revision downwards of -$1bn, and personal consumption was recalculated as $8bnhigher than in the first GDP estimate (Bureau of Economic Analysis, 2010b) (Bureau of Economic Analysis, 2010a). An earlier article made a detailed examination of 2
quarter USGDP data and therefore only the implications for long-term trends are dealt with here. (Ross,2010)
The downward revision of 2
quarter GDP naturally highlights how much slower present USrecovery is than in previous post-World War II business cycles. Ten quarters into thedownturn US GDP still remains 1.3% below its peak in the 4
quarter of 2007
seeFigure 1. In the previous worst post-World War II business cycle, that following 1973, recovery to theprevious peak level of GDP was complete after eight quarters. Unless there is a significantacceleration of growth, US GDP will not regain its peak level until 2011
meaning at leastthree years of net zero percent growth.This slow recovery is, however, in line with a gradual but clear deceleration of long-termgrowth in the US economy
see Figure 2. The moving 20 year average of US GDP growthhas now fallen gradually to 2.5% - significantly below its 3.5% historical average. Reasonsthe US is unlikely to reverse this trend in the foreseeable future are analysed below.