Real GDP Continues Growing

Real GDP grew by 1.9 percent in the third quarter of 2019, according to the report released by the BEA on October 30. This follows a 2.0% increase in the second quarter. Keep in mind, this is the first ("advance") estimate of third quarter data, and will be revised later. 


Consumption alone accounted for the 1.9 percent increase in real GDP.  Together, the other three components (investment, government spending, and net exports) were essentially unchanged.  

Real U.S. GDP has grown at a relatively steady rate since 2009. It is currently estimated to be over $19 trillion.

More Good News

Everybody wants to talk about an impending recession but let's take a moment to appreciate the longest expansion in U.S. history.  The first estimate of real GDP growth for the third quarter of 2019 is 1.9%.  This means the current expansion, which began in July 2009, is now marching into its eleventh year.  The graph below shows quarterly U.S. real GDP growth rates since 2015.


I'm first to admit that this expansion lacks the zip of many previous expansions.  But we haven't seen recession now for over 10 years and the unemployment rate is just 3.6 percent.  

So while Hong Kong now seems to be in a recession, with real GDP falling 3.2% in the last quarter, the U.S. economy just keeps marching on.  At least for now.

Inflation Almost Nonexistent in September

Month-over-month changes in the Consumer Price Index (CPI) have been nearly zero for much of the past year.  The graph below shows monthly inflation over the past two years. 


In September, the CPI rose just 0.0226 percent - that's pretty much "zero."

These low numbers astonish many people who see grocery prices or college tuition rising. But remember, the CPI measures the overall price level, with weights given to prices of individual categories based on the consumption patterns of an average consumer. 

So even though food prices rose o.1% in September, gasoline prices fell 2.4% (in just one month!).  

Annual Inflation Stays Below 2%

The latest Consumer Price Index (CPI) report from the Bureau of Labor Statistics (BLS) shows very little estimated inflation  - just 0.1 percent in August.  Over the past year, the CPI increased just 1.76 percent, in line with recent history of 2% or less.  


But remember that the CPI is an aggregate statistic and includes prices of typical U.S. consumers. When the inflation rate is 2%, many prices rise faster than 2% and many prices even fall.  The table below shows the change in selected prices over the past year in the United States. 

CPI Table 0819

College tuition and fees increased just 2.5% and textbook prices were actually flat.  Gasoline prices fell over the course of the year and gasoline spending takes up about 4% of the typical consumer budget.  

Not All Jobs Are Created Equal

The unemployment rate remained at the historically low 3.7 percent in August, according to the jobs report released today by the BLS.  


This good news is somewhat dampened by the apparent slowing of private sector hiring.  While 130,000 new jobs were added in August (by this first estimate), part of this is due to temporary government hiring of 25,000 workers for the 2020 Census.  The graph below shows monthly changes in nonfarm employment since 2016.


As you can see, jobs growth has slowed this year.  Average growth in 2018 was 223,000 per month but just 158,000 so far in 2019.


The Longest Expansion Ever

Folks, the economy may be slowing, but we are now actually working on the longest U.S. economic expansion on record.  It has literally been a decade since the last recession.  To be fair, the effects of that recession (the "Great Recession") lingered long after it was officially over.  But strictly speaking, the last recession finished in June 2009.  Prior to this current expansion, the longest on record was March 1991 to March 2001, so we are just now edging out that previous record (assuming we don't go into a recession this month!).

The newest data release from the Bureau of Economic Analysis estimates real GDP growth for the second quarter of 2019 at just 2.0 percent, which is not great.  But the economy is still growing.  And don't forget the unemployment rate is still at historically very low level of just 3.7 percent.  

That said, many economists are starting to worry about a possible recession on the horizon.  The figure below shows two sub-par (less that 3%) growth quarters in the past three.


Economists blame the escalating trade war with China (and others) for the slowing economy.

But let's not end on that negative note: this U.S. economic expansion is the longest on record.


Unemployment Rate Steady at 4.1%

This morning, the Bureau of Labor Statistics released the Employment Situation Report for March. After the huge increase in nonfarm payroll employment in February (+326K), the economy added only 103,000 jobs this past month. Despite that, the unemployment rate remained at 4.1% for the sixth straight month.


Despite the apparently tight labor market, there is still room for growth. The labor force participation rate is still historically low at just 62.9%.  A decade ago, in March 2008, the labor force participation rate was 66.1 percent.


Solid Jobs Growth in January

The Bureau of Labor Statistics released the Employment Situation Report this morning, as they generally do on the first Friday of the month. Throughout this semester, we follow at these reports and look closely at the number of jobs added, the unemployment rate and the labor force participation rate. In the month of January, the BLS estimates that 200,000 jobs were added, making it the 88th consecutive month of positive job growth and resulting in an unchanged unemployment rate of 4.1%. It is the fourth consecutive month that the unemployment rate is at 4.1%.


The labor force participation rate remained at 62.7% for the fourth consecutive month (see below).  This is low by historical standards and has not increased as the economy gained steam over the past five years. This worries many economists as it seems that potentially available workers are not currently a part of the labor force.


The big number in this month's report is the average hourly earnings for private-sector workers which increased 0.34% this month, bringing the annual growth rate to 2.9%, the largest annual increase since 2009. This could be a sign that the tight labor market is finally making enough pressure to bring wages up. 

New 2017 GDP Estimates

This morning, the BEA released the GDP estimates for last year.  The headline figure is the advance estimate of GDP for the fourth quarter of 2017. Real GDP, inflation, unemployment and the labor force participation rate will be the main statistics that we will follow this semester. After taking into account two strong quarters and historically low unemployment rate, at 2.6%, real GDP growth seems underwhelming. But let's not jump into premature conclusions.


We can look more closely at the different components of GDP to better understand why the last quarter was actually pretty strong.  GDP is divided between spending on consumption (C), Investment (I), government spending (G), and net exports (NX).  Consumption increased by 3.8%, investment by 3.6%, government consumption expenditures and investment by 3.0%, exports by 3.9 percent.  What limited overall GDP growth is a 13.9% increase in imports.  This increase in imports is not harmful to the U.S. economy (we get more goods and services!).  But imports enter negatively in the National Income Accounts and so they reduce the estimate of GDP growth.  It is a little ironic that imports increased so much, given the Trump administration’s protectionist rhetoric.  In fact, this represents the largest import growth since the third quarter of 2010.

Inflation is Still in Check

Earlier this week, the BLS released the Consumer Price Index Report for this past month. The CPI grew at just 0.1 percent in October and 2.05% over the past 12 months.


The low overall inflation was accompanied by a 3.2% increase in shelter and a sharp 6.4% increase in energy prices. Together, shelter and energy amount to over 40% of the CPI basket weight that the BLS uses. The spike in energy prices is due to the 10.8 percent rise in energy commodities which is constituted by fuel oil and motor fuel. Since last October, gasoline prices have increased 10.8% and 39% since February of 2016.

The table below shows October price changes in different CPI categories.