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September 2014

Second Quarter Strongest since 2006

The BEA now estimates that real GDP grew by 4.6% in the second quarter. This revision means that the most recent quarter saw the fastest real GDP growth since 2006. That's a long time.  Before we get too excited, let's remember that this comes on the heels of negative growth in the first quarter.

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The growth was driven largely by changes in investment, which grew by $115.5 billion, or 19.1 percent on an annual basis.

Those who follow me on Twitter may recall that, back on July 3, I predicted that second quarter growth would come in at "something like 5 percent." My rationale was that the negative first quarter growth was likely due to short run supply factors associated with the polar vortex.  After all, the unemployment rate fell consistently throughout the spring.  Even a blind squirrel finds a nut once in a while.

August Unemployment Rate Steady

The unemployment rate for August ticked down to 6.1 percent, but this was not considered a great job report by most economists.


The disappointing news is on the job growth side, with just 142,000 jobs added (see graph below).

On the one hand, 142,000 NEW jobs can't be considered terrible news.  On the other hand, the big issue with the recovery from the Great Recession has been whether the economy can sustain jobs growth.  For comparison purposes, note that, since 2011 the U.S. economy has been averaging 190,000 new jobs per month.  So this recent news is not reassuring.  It will be interesting to follow total employment over the next few months.


Finally, the labor force participation rate remains at modern historically low levels.  For August, it was just 62.8%.  The LFPR has not been lower since February 1978.


Solid Growth in Second Quarter

The second estimate of real GDP growth from the BEA and it confirms a strong rate of 4.2 percent.


The strong second quarter reinforces my view that the first quarter contraction (-2.1%) was largely due to a short run supply shock.  It seems like a long time ago now, but you probably remember just how cold that polar vortex was.

One last graphic.  This one is an update that shows how the path of real GDP is just not moving back to the long run trend prior to the Great Recession. 


Something structural definitely happened during the Great Recession.  Aggregate demand declined, but long run aggregate supply must have too.