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Current US GDP growth rate suggests worsening unemployment [ClearOnMoney]
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Current US GDP growth rate suggests worsening unemployment

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Commentary

Current US GDP growth rate suggests worsening unemployment

28 Jan 2012 by Jim Fickett.

On Friday the BEA reported a first estimate for 2011 Q4 GDP.

Real gross domestic product – the output of goods and services produced by labor and property located in the United States – increased at an annual rate of 2.8 percent in the fourth quarter of 2011 (that is, from the third quarter to the fourth quarter), according to the “advance” estimate released by the Bureau of Economic Analysis. …

During 2011 (that is, measured from the fourth quarter of 2010 to the fourth quarter of 2011), real GDP increased 1.6 percent.

James Hamilton at Econbrowser points out the most important consequence of relatively slow growth:

A key reason to be concerned about continuing below-average GDP growth is Okun's Law, which originally held that to get the unemployment rate to decline by 1 percentage point, we'd need a year of GDP growth 3% above average. Okun based that estimate on data for the U.S. economy prior to 1960, but it has held up pretty well in the half century since then, with 2.5% above-average GDP growth a better summary of the requirement based on the full sample of data now available. …

if real GDP grows by less than 3.3% over a year, the unemployment rate is more likely to rise than fall. The fact that the unemployment rate fell by 0.9 percentage points in 2011 despite GDP growth of only 1.6% for the year is thus a little surprising, and attributable in part to a declining labor force participation rate. If we want to see real progress in 2012, we have to hope for better GDP numbers than we had for the fourth quarter.