Matt O’Brien is disheartened by the above chart, which was created by Larry Summers:
It shows how much more pessimistic the Congressional Budget Office (CBO) has become about the economy, revising its estimate of potential economic down in each of the last seven years. The economy, in other words, has grown so little that the CBO doesn’t think it can grow quite as much anymore. Although, of course, GDP has still fallen far short of even these diminished expectations.
This is scary stuff. Much more than a series of descending lines can really convey. If it’s right, it means that the Great Recession has made us permanently poorer. That the economy will never get back to its pre-crisis trend. Instead, it will stay stuck in a “new normal” of slow growth that feels like a slump—forever.
O’Brien also throws cold water on last quarter’s seemingly-impressive 3.5% GDP growth:
So how good is the economy, really?
Well, we can get a better picture if we strip out the noisy inventory and net export numbers to leave us with something that goes by the catchy name of final sales to domestic purchasers. Then we can look at growth over the past year to smooth out, for example, the polar vortex-induced dip at the start of the year. This shows us the economy’s underlying strength, basically how much of today’s growth we can expect to continue tomorrow. And … it’s pretty much the same now as it’s been throughout the recovery: growing 2.4 percent a year. Now it might, just might, be picking up ever-so-slightly right now. Or it might just be ticking up. We’ll see. But in any case, it’s not that much different from what it’s been: a recovery that’s given us plenty of head fakes, but has really just been chugging along at the same speed the whole time.
Jared Bernstein is more upbeat:
[T]here’s a lot of momentum in these trends and my expectation is that the steady recovery remains on track. That’s not the express track, to be sure. We never had the needed bounce-back after the Great Recession and we settled into trend growth before repairing enough of the damage. There’s still a lot of slack in the job market and that’s why most households’ real wages and incomes have been pretty flat.
So I’m definitely not saying all’s well. Instead my point is that it will take a lot more quarters and years of this slow and steady improvement to squeeze the remaining slack out of the job market and get back to full employment. And only then do I expect to see many more people benefiting from the growth …
Chico Harlan compares the US to Europe:
That [3.5% GDP] figure came amid growing fears that Europe is sliding into its third recession since 2008. And while the United Kingdom is faring well, too, economists predict that by 2015 the United States will be the rich world’s standout economy.
“GDP growth of 3.5 percent?” said Jay Bryson, a global economist at Wells Fargo. “If you said that to a European right now, they’d start to cry tears of joy.”
The Dish 