Three times rotten? A recovery hasn’t seen this many dips since the 1950s

The U.S. economy has fallen into negative territory three times since the current recovery began in mid-2009, a dubious feat that last occurred more than a half a century ago.
What’s to blame for the most up-and-down recovery since the mid-1950s?

Serious flaws in how gross domestic product is calculated is one prime suspect. The government’s GDP report appears to have underestimated growth in the first quarter for decades, a problem that has become even more acute. At the same time GDP probably has overstated growth in the second and third quarters, so the underlying U.S. growth rate is probably the same.

“The evidence of a seasonal quirk in the first-quarter GDP growth figures is pretty overwhelming,” said Paul Ashworth, chief U.S. economist at Capital Economics.

The second culprit — and evident ring leader — is the U.S. economy itself.

Bad policy, back luck or whatever you call it, the economy is no longer growing as fast as it used to. So any time there’s a temporary dip in economic activity because of poor weather, spiking oil prices or some other major event, it’s no surprise that GDP might show a contraction.

The U.S. has grown at a mediocre 2.2% annual pace since the first full year of recovery in 2010. That’s just two-thirds as fast as the economy has grown since the government began keeping track in early 1930s.

The less the economy grows, the easier it is for quarterly GDP to slip into the red from time to time, especially if some sort of “shock” occurs. The first-quarter suffered from several of them: unusually harsh weather, a dockworker’s strike, a soaring dollar that undercut U.S. exports and a drop in business investment tied to plunging oil prices.

Of course, such shocks are nothing new, and the economy in the past has shown more resistance to them. The U.S. did not experience a single negative quarter, for example, during the last three major economic expansions: the early 2000s, the 1990s and the 1980s.

You have to go a lot further back to the weak 1973-75 expansion to find another episode of a quarterly contraction in a recovery phase.

Another one occurred in the short-lived 1958-1960 recovery.

The last U.S. recovery to include three negative quarters like the current one was from 1954 to 1957. Yet there is one big difference compared to today: the economy back then expanded by leaps and bounds.

The U.S. grew at a 3.8% rate during the “Eisenhower recovery” following the end of the Korean War. And the fastest quarter of growth nearly reached 12% — more than twice as strong as the best quarter in the latest recovery.

 

This has certainly been a very tepid recovery. What little improvement we've seen has largely been due to the Fed's actions. We'd have a much better recovery without so many new regulations and taxes / tax hikes put in place (Obamacare, etc). The fact that there's virtually no inflation and that the Fed has felt it necessary to keep rates at zero for nearly 7 years is troubling.