If you’re keen for yet another post comparing the US recovery against prior editions, we think this table sent by Credit Suisse on Friday is worth a quick look:
It shows the average contribution to real growth of each GDP subcomponent in the first ten quarters of the last five recoveries, and then compares them against the corresponding contributions in this one.
Some commentary from Credit Suisse (emphasis ours):
Overall real GDP growth is averaging 2.4% in the current recovery, about half the historical average (4.7%).
The largest missing block of the economy is consumer spending on services, with the shortfall spread out among a number of sub-components – housing and utilities, health care, financial services, and transportation. …
Residential investment (deviation from average: -0.7 ppt) and state and local government (-0.5 ppt) are the next largest laggards.
Gross exports have been the most significant growth outperformer in the recovery so far, though a more moderate run rate for global growth this year (our expectation) suggests that status is vulnerable.
The lag in spending on services is unsurprising given the scale of the jobless problem and the decline in household formation; ditto for residential investment in the aftermath of a housing bubble.
But to focus on the public sector… For all the talk of deficits and spending, you can see above that the federal government hasn’t contributed any more or less during this recovery than the average for previous recoveries.
This isn’t entirely a fair comparison, as the counting here starts in the third quarter of 2009 (the first quarter of the recovery) and therefore excludes the huge chunk of stimulus that hit in the second quarter of 2009.
Even so, if you take another look at this chart from Goldman that we posted earlier this month…
… you can see that after the initial stimulative boost, fiscal policy began to steadily contribute less and less to growth until finally becoming a drag for most of last year and part of the prior year. That’s why the federal contribution to growth is roughly a wash during the recovery.
Meanwhile, the trend in state and local government spending is well captured in this chart from CBPP:
See this David Leonhardt post for more.
There were reports earlier this month that higher tax revenues this year could reverse the downward trend seen in the above graph. We hope so, but federal fiscal policy is likely to be a drag even if the payroll tax cut and unemployment benefits are extended. That’s before getting into the issues that will confront the government once the election is over.
We won’t make any normative arguments here, but whatever your ideological stripes it shouldn’t be controversial to note that these kinds of fiscal headwinds have been, and will continue to be, unhelpful to accelerating growth. Or as James Hamilton frequently writes, the thing about fiscal contraction is that it’s contractionary.
Find the full Credit Suisse note in the usual place.
Related links:
Weak recoveries we have known – FT Alphaville
What Americans are(n’t) buying – FT Alphaville
The Role of Austerity – Economix
What awaits you, Mr President(-elect?) – FT Alphaville
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