I’ve frequently written that if Americans should have learned anything from the financial crisis, it’s that not all growth is created equal. During the bubble decade leading up to the crisis, the U.S. economy grew at rates that were below average historically speaking, but the real problem was the growth was unhealthy; it stemmed largely from sources that were unreliable, namely personal consumption and housing.
That’s why a typically neglected aspect of the new figures on gross domestic product (GDP) released by the Commerce Department this morning contains such distressing news. The numbers include revisions for the years 2011-2014, and confirm that America’s growth during the recovery it’s currently experiencing from that financial crisis – and from the ensuing recession – is getting even less healthy than its bubble-era counterpart. Just as bad – the economy isn’t even growing as fast as it was during the mediocre “oughts.”
First let’s review what the new GDP figures report about that 2011-2014 period. Their findings? Growth during that period of this historically sluggish recovery was even worse than previously thought.
Adjusting for inflation, the economy grew by 1.60 percent in 2011 – just as earlier estimates showed. But 2012’s real expansion was revised down a bit from 2.30 percent to 2.22 percent, and the 2013 rate all the way from 2.20 percent to 1.49 percent. Real growth last year was revised up marginally – from 2.40 percent to 2.43 percent. On net, however, 2011-2014’s economic performance was weaker than originally thought – and certainly weaker than the bubble decade’s performance.
But if the economy’s makeup is examined, it becomes clear that recent growth has not only been slower than during the bubble – its been even more consumption- and housing-heavy. And the new GDP release shows that this trend has continued through the middle of this year.
As a benchmark, let’s look at the economy in the fourth quarter of 2007 – when the Great Recession officially began. At that time, the toxic combination of consumption and housing accounted for 71.16 percent of all economic activity, adjusted for inflation. By the time the current recovery began, in the second quarter of 2009, this figure was down to 70.94 percent, indicating that a bit of progress had been made.
But the latest data, providing first look at the second quarter of this year, show that the consumption and housing share of the economy in after inflation terms is up to 71.80 percent – nearly as high as the last bubble decade reading. In other words, consumption and housing have been growing faster than the economy as a whole for the last six years. They also were among the economy’s growth leaders from the first to second quarters of this year, and over the last year.
An economy getting healthier – not simply bigger – would be an economy whose growth was led by business investment and exports. The current growth mix, by contrast, looks like a recipe for Financial Crisis 2.0. Raise your hand if you think anyone will raise this crucial issue at next week’s Republican presidential debates – or at any stage during the intensifying presidential campaign.