Economic Growth

Unemployment rate drops to 7%

The latest jobs report shows the unemployment rate dropped to 7.0% in November, the lowest level in five years.  In addition, the economy added 203,000 more jobs.


The last time the unemployment rate was this low was in the worst period of the Great Recession.  During the fourth quarter of 2008, the unemployment rate climbed from 6.1% to 7.3%, on its way to 10% by the end of 2009.  During 2009's bleak fourth quarter, real GDP contracted by more than 8%. 

Real GDP up 2.8% in Third Quarter

Real GDP grew at 2.8% in the third quarter of 2013, according to the advance estimate released today by the BEA.  This growth rate is very close to the long-run average growth rate for U.S. real GDP, which is 3%.  The graphic below plots quarterly GDP growth rates since 2003.


If this number holds up, it is the strongest growth the U.S. economy has had since the first quarter of 2012.  Keep in mind, this is the first estimate (also known as the advance estimate), and will be revised twice over the next two months. 


Happy 100th Birthday to the Automobile Assembly Line

Today's Detroit News has a nice article on both the development and impact of the assembly line in car production. Henry Ford brought assembly line technology to the car industry in 1913.  Before the assembly line, cars were luxury items, affordable only for the very wealthy.  Ford's innovation reduced costs dramatically and allowed for cheaper car prices, which made them more affordable for the masses. 

Ford was first to implement the line, allowing Ford Motor Co. to increase production of its Model T sevenfold and drop the price by nearly half — from $600 to $360 — during a five-year stretch from 1912 to 1916.

The innovation propelled the auto industry and the American economy to new heights, and changed the way ordinary Americans lived their lives. 

The assembly line is a great illustration of a technological advancement.  We often visualize new technology in terms of new goods (like the new Samsung Galaxy Gear).  However, the idea behind the item is the technological advancement.  New technology is a result of somebody arriving at a more efficient way of doing an old task.

The Great Depression was Very Bad

One of my pet peeves is the myopic view that our most recent recession (the Great Recession) is comparable to the contractions of the 1930s (the Great Depression).  Photographs from the Depression era are very helpful in dispelling this misconception. 

Today's Mail Online published a series of poignant Walker Evans photos from the 1930s, which illustrate the extent to which life in the Depression era was completely different from life in the past five years.

I know the Great Recession was difficult for many and that long-term unemployment remains stubbornly high.  But let's not equate it to the Great Depression.  After all, according to this website, nearly 500 new Starbucks locations opened in the United States during the worst part of the Great Recession (between 2007 and 2009).


CBO now Projects Higher National Debt Levels

Today, the Congressional Budget Office (CBO) revised upward its estimates for future U.S. federal debt levels.  As the graph below shows, the CBO  projects the federal debt held by the public to reach 100% of GDP in 2038. 

How bad is this news? Just last year, the CBO predicted that this debt measure would actually fall to just 53% by 2030.

The reasons for this massive revision are summarized nicely by Peter Coy at Bloomberg Business Week.  In short, they include:

  1. New budget agreements from January, which made the Bush tax cuts permanent for many Americans
  2. Longer life expectancy estimates, which mean higher costs for both Social Security and Medicare
  3. A growing number of worker disability claims
  4. Higher unemployment forecasts, which means lower GDP and higher Debt-to-GDP ratio

These factors work together to substantially worsen the long-term prospects of the U.S. national debt level.

Shanghai, Before and After

The Daily Telegraph offers one of the most vivid illustrations of how institutions affect economic growth. It does this by showing photos of Shanghai in 1987 and in 2013.  The contrast is stunning.

Start with the 2013 view of Shanghai, the financial center, or "New York City", of China.

Now, compare it to the view in 1987.

The difference?  Private property rights.  Institutions really do matter.