Economy Grows at Fastest Pace Since 1984

The department of Commerce today came out with its report for the third quarter, indicating that the economy grew by 7.2% on an annual basis during that period.

This is the fastest growth since 1984, but there has yet to be the jobs usually associated with such a boom.



Employment numbers are usually a "lagging" indicator. This means that the impact on jobs occurs after the boom or bust period, usually by a period of a few months.

An article from CNN-Money indicates that this time is different.
This time's different

I want to focus on the second possibility:



Question: Has the way the economy works evolved from the classical model? Is it possible to have a "jobless" recovery which is beneficial in the long term? Is a recovery possible in which productivity gains are sufficient enough whereby a smaller workforce is needed even during a "boom" period? Does this indicate that the classic model of boom/bust vs. employment is now flawed?

This is a great topic with some great questions! I've been wondering about the classical economic models for quite some time and how they apply to the current US economy.

Back when I was in school (yeah yeah I know that was 100 years ago) , the economy was based primarily on the manufacturing sector. You could trace growth through the cycle of raw materials supply such as iron ore and coal into the processing of those raw materials into basic products like steel and from there to finished products like buildings, automoblies, bridges, ships, etc.... The entire economy was basically supported by the manufacturing base. Then that began to change into more of a service-based and technology-based economy and I think that's what we're seeing more and more of today. Financial services, IT services, things like that seem to be the hot areas while manufacturing continues to move elsewhere, mainly overseas. It used to be a maxim that the most efficient way to build something was to have the engineering people and the manufacturing people next to each other so that problems could be identified and fixed on the spot. With the advent of global communications the way they are, that maxim seems to have gone by the wayside. Nowdays, it is possible to resolve issues between engineering and manufacturing across oceans.


This is a fundamental change I think and I'm not sure that our classical economic models work anymore, at least for the US economy, maybe they do for the global economy. It seems to me that in this case the upturn in the US economy is reflective more of an increase of productivity per worker than it is a growth in the workforce.

I just did a quick look at the productivity numbers since 1970 and as down as I am about the economy, I was surprised that I'm wrong about it as well.

Looking at the tables, it looks like economic pull-backs are followed by periods of rapid productivity growth, which dampens employment growth for the first few "little whiles" (months, quarters, whatever) of the recovery. Just remember how bad the Bush 41 economy was supposed to be in 1992, but the productivity growth was 5.2%... the highest it had been since 1982 when Reagan's recession was ending.

GDP must grow faster than the productivity numbers in order to provide employment growth. In 1992, GDP grew by 3% (lower than productivity growth, so fewer jobs and no more Bush 41), but productivity dropped in 1993 (1.9%) and 1994 (3%) and GDP was larger (2.7% and 4%, respectively), so we had an expansion of the employment base (and Clinton benefited).

So... what does this mean? Productivity gains are hard to maintain without new techniques or technologies and not much has happened lately to drive that, so eventually productivity numbers will fall. The GDP growth will also fall, since three of the past six quarters have seen GDP gains of less then 1.5%, so I'm guessing that we'll see another of those in the 4th quarter.

To your questions: No, yes/no (yes, you can have a jobless recovery for a while, no it's not beneficial), no (large productivity gains are not sustainable over long periods and neither is large GDP gains), no.

The problem with this, is that it probably isn't sustainable. Look at the last three years, and you'll see a few other periods where we had a decent quarter of growth, followed the next quarter by a significant slowing or even a drop.

Bear in mind also, that this was a period that people got their tax rebate checks. Also consumers generally go on vacation, and kids (late in the quarter) return to school, requiring purchases of clothing, supplies, etc. Both of these could have a bigger impact than they should on these numbers. The big test is going to be Q4, when we see how well retail does during the Christmas buying season.

The other thing to keep in mind is that a substantial portion of this is government spending, as well. Tons of plywood and concrete for construction in Iraq, for example.


But only if the growth is sustainable, and so far it hasn't been. That's part of why we haven't seen the jobs yet. Business growth is going up and down like a yo-yo, and inventories have not dropped enough yet, at a regular, steady clip to allow business owners to think that they can add employees without hurting profits.


Not at all. It simply means that there is not yet enough consumer/employee confidence to maintain a solid level of purchases. After all, while todays GDP numbers look good, what was also reported, is that another 6,000 job losses were announced today in auto manufacturing, energy, and other companies. Hardly a rosy picture for them.


How can any of this be beneficial, long term or not? What is beneficial to having people who want to work, who need to work (to not be a burden on the welfare rolls)? Productivity gains in the workforce, are not necessarily going to translate into additional jobs, or even in additional sales, if people can't afford to buy the product because they are out of work.

I have a pessimistic idea I'll throw at everyone.

Other people in other countries have our jobs so we may never see them again until we agree to work for less.

Those child tax credits are really a method of conversion. Government--"We'll give you money. Go spend it. The GDP will go up."

Why is Warren Buffet highly skeptical about putting any more of his money in American investments?

I agree on that part, but I also do not know what the alternative is. Are companies supposed to become "less productive" so they can in turn hire more people? I work in the Auto Mfg. Industry, and our plant has been named the most efficient in North America every year for 10 years running. Now some may think that would mean the work force could be reduced because we do more with less, but the opposite is true. We continue to expand and take on new projects/models because of our level of efficiency, and in turn more people have been hired. I know that in some cases more efficiency means less employees, but that is the definition of efficiency and you cannot get around that. And I honestly feel, and have always felt, that the current administration has little to do with the economy. To honestly think they can affect something so vast and multi-faceted in such a short amount of time is a bit egomaniacal IMO.

stotty203, I disagree with you on how much of an impact any administration can have on the economy. Look at the Clinton years. Yes, he may have lied about somethings we know about and some we didn't but he made us all feel safe. He made us all proud. He exuded confidence and it affected the country. Granted those were also the dot com years. Bush walked into office and months later 9/11 happened. That was a drastic blow to everyone, obviously. But to me Bush does not show the confidence Clinton did. I think Bush has more integrity than Clinton.

I'm not really a financial person but can anyone tell me what effects the #'s on GDP and would the war in Iraq and natural disasters (like hurricanes and fires) hurt or help. Could all of the military people sending home paychecks be contributing to the rise in GDP?

The war in Iraq will help those numbers a lot, for the money we are pouring into Iraq for supplies for the construction efforts, etc. Natural disasters may have a temporary hinderance for a few weeks, at least on stock market profits and projections, depending on the damage done. Nothing permanent though, and stocks may actually go up, if a hurricane misses us, for example.

Military people sending paychecks home is no help at all. Think about it. If they are active duty military, they would ordinarily be receiving their paychecks where-ever they are, and sending most of it home, anyway. If they are Reservists, or National Guard, it actually hurts the economy, because they are most likely making far less on their military pay, than they would be making in their civilian jobs. So any money they are sending home, is most likely not being spent on anything but the bare necessities by their families.

Here's something to contemplate:

Our GDP is running about $10 trillion per year. We're currently growing it at about 5% per year. 5% of $10 trillion is $500 billion... or just about the amount of debt that the US government had to issue last fiscal year. So... deficit spending is financing most of this GDP gain. Can it last?

I would agree with this somewhat if companies were to lower the prices of goods sold, asn the employee paychecks dropped. We all know that that isn't going to happen though.


That may be, but it really didn't help a whole lot, as this story from the Washington Post says. A few quotes:



In other words, the administration has pretty much done all it can, as far as consumer spending goes, with the tax cuts, and things don't look nearly as rosy for the last three months of the year, crucial fro retailers in the Christmas buying season. With flat or declining income growth, it may be a rather bleak Christmas.

Job growth comes from GDP growth that's greater than productivity growth.

Q3 GDP growth is initially pegged at 7.2% (these numbers are regularly revised and when it's this large, the revision is usually downward)

Q3 Productivity growth was released this morning and it's 8.1%.

That means that the economy grew at a slower pace than productivity, so job gain didn't happen.

Bad news if you're one of the unemployed. Your misery isn't getting better.

Not so fast there spin meister.

According to an article by CNN.com jobless claims dropped to the lowest level since Jan 2001.

A quote from the article



What was that about job gains not happening?

Another quote for good measure..

The statistic for "new unemployment claims" does not directly translate into new jobs. We're entering the retail boom season, so jobless claims SHOULD fall just now (especially with retail sales going well compared to last year), but are I.T. people who are out of work really going to be satisfied with a retail position? Are unemployed manufacturing workers going to be satisfied saying "Welcome to Wal-Mart, would you like a cart today?" Doubtful.

However, it DOES mean that fewer jobs than usual have been lost in the past week, which is a GOOD THING. I expect the numbers to stay in the 350-380K range for the next 10 weeks... until after the holidays. Companies don't do massive layoffs right before the holidays.

In other words: the short-term jobs claim number was good, but the long-term productivity number vs. GDP growth wasn't good for employment. Let's see if the jobless claims stay down there after the holidays.

I agree, that will be the test as to the question of the economy getting back on track.
Here is an article detailing the latest jobless claims.



edited to add: D'OH!
Sorry Sleeper, missed that one

Hey DT, that's the exact same link as the one in my post.

What I really don't understand is we have some positive news about the economy and there are those out there that want to spin it in a negative matter.



By the way AMF, the types of jobs were not even mentioned anywhere in the article. Your reference to Walmart greeters was a direct attempt at casting this in a negative light.

If you read all the way thru the CNN article, you'd see this little fact:



and this tidbit:



In other words, only 20,000 people came off the unemployment roles. And figuring that some of those people came off the roles because their benefits ended, that doesn't indicate a lot of job creation going on yet. Which is consistent with what I'm saying.

Actually, you'd like to think that I was casting something in a negative light, but my statement stands: unemployed manufacturing workers don't want to work at Wal-Mart or any other store. They want their factory job. Unless, of course, they're starving and that's all that's left.

And it's still negative for the unemployed, regardless of how YOU try to spin it.

I want to hear you say it AMF. Was this good news or bad news for the US economy?

Read my lips: neither.

The reduced new unemployment claims for a single week doesn't tell you anything.

That is entirely inaccurate.




Last time I checked 5 was more than 1.

Today's employment news is DEFINITELY good news.

Payrolls Surge, Third Straight Rise

The unemployment rate dropped slightly. Broken out:



October was indeed a good month, although the retail component seems short-lived, considering the holiday season is upon us. I'd say the economy is definitely moving forward, although not sure if it will hold or how fast it will go. Or whether it will improve enough to lift Bush next November.

As the economy improves more and more over the next couple months and companies get more revenue, the jobs will come back.

Today's job report was very encouraging.

Jobs gain in October



Also, with the upcoming x-mas shopping months, stores across America will be needing more cashiers, so there will be a spike of more jobs for November and December but it will decline again in January.

All in all, consumer fears of economic recession are drifting away and they are starting to spend more to help the economy after this long economic beatdown

More positive numbers keep rolling out:

http://money.cnn.com/2003/11/26/news/econo....reut/index.htm


http://money.cnn.com/2003/11/26/news/econo...bless/index.htm