Friday, January 30, 2015

The Long Decline in Per Capita GDP Growth

While economic growth in the United States is looking fairly robust as shown on this graph: fact, if we look at GDP corrected for inflation and on a per capita basis, it is quite clear that the economy has not really done all that well since the end of the Great Recession.

Here is a graph from FRED that shows real domestic growth per capita since 1948:

You will notice that there was a significant drop in real per capita GDP during the Great Recession, in fact, per capita real GDP dropped from a peak of $49,506 in the third quarter of 2007 to a low of $46,781 in the second quarter of 2009, a drop of 5.5 percent.  Since then, it has recovered to $50,805 in the third quarter of 2014, the latest quarter for which data is available.  This works out to an increase of 8.6 percent from the 2009 low point.

While this looks relatively healthy, there is another way to look at the data.  Since the standard measure of GDP in the United States is expressed as the compounded annual rate of change from one quarter to the next, let's look at the per capita real GDP in those terms as shown on this graph from FRED:

When we look at economic growth in these terms, the latest recovery certainly doesn't look quite as healthy as it did after previous recessions.    

Here is a table that provides the average compounded annual rate of change of per capita real GDP for each of the periods between recessions since 1961:

Here is the same data in graphic form:

It is interesting to note that after each recession since the recession of 1974, the per capita annual growth rate of real GDP has dropped, hitting a multi-decade low since the Great Recession.  This quite clearly shows us that United States economic growth rates have been slowing for decades.

While we are all aware that GDP data is one of the most heavily revised lagging indicators, a brief look at the history of GDP per capita shows us that this recovery has been far more modest than any recovery in the past five decades, no matter how often the data is revised. 


  1. Are we in the midst of a disastrous inflation? No, but in some areas prices are increasing rapidly -- doom approaches. Is unemployment still increasing? No, but the participation rate is very low -- doom approaches. Is the economy still crashing? No, it's increasing, but used to be, in the times it wasn't crashing, it was getting better faster than it's getting better now. Doom approaches.

    Maybe it's because I have a naturally sunny disposition, but I find these persistent efforts to cherry-pick data to find some disaster or other impending rather tiresome.

    1. I wouldn't call it cherry picking, instead, it is looking at the data behind the data releases that the mainstream media focuses on. For example, the jobless rate is down and the number of unemployed Americans is at or near post-Great Recession lows. Have all Americans benefitted from the "recovery"? I suspect that the 2.8 million Americans that are considered long-term unemployed would suggest that the "recovery" has not impacted them in any positive way. Do you hear about them in the MSM as often as you read about the headline U3 rate improvements?

      The problem with the current "recovery" is that it has been very selective and, as Bruce states below, is not build on a solid and stable foundation. My concern is that we are approaching the next recession and the economic improvements since 2009 will come tumbling down like a house of cards, no matter what the Fed, the Obama Administration or Congress would have us believe.

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  3. I would be a lot more excited about what has been recently herald as good economic news if I felt it was built on a solid and stable foundation. I contend much of the growth experienced during the last several years driven by low interest rates is of very poor quality.

    Using the analogy of a bridge, if you are unable to get to the other side you often have a problem. A plank breaking under your feet may spell a problem and the collapse of the total structure a real disaster. Below is an article questioning just how stable the economy really is.

  4. Does not GDP include debt?
    If so what would GDP look like if only net equity was included?
    Don Levit

    1. If debts were included, it would become too obvious that the king is naked, that is, that Western World is completely broke. Massive money printing from central banksters will keep the fiction going on... (so far).