Real Per Capita GDP Falls at Annual Rate of 7.0% in First Quarter

Yesterday the Bureau of Economic Analysis reported that real GDP (“real” means adjusted for inflation) fell in the first quarter at an annual rate of 6.1%.  But that only measures the size of the economic pie.  What matters to you and me is the size of our slice.  So a more meaningful gauge of the economy is real per capita GDP – adjusted for growth in the population. 

Since the U.S. population grew by 580,000 people in the first quarter (an annual growth rate of 0.76%) then real per capita GDP fell at an annual rate of 7.0%.  This follows a decline of 7.4% in the 4th quarter of 2008 and a decline of 1.6% in the 3rd quarter of 2008. 

At $36,998, real per capita GDP has fallen by 3.9% from its peak of $38,516 in the 2nd quarter of 2008 and is now at a par with real per capita GDP in the 2nd quarter of 2005. 

Two additional facts must be kept in mind in evaluating this data.  First of all, the BEA’s “real” GDP figures are totally dependent on their calculation of changes in the Consumer Price Index.  There are those who believe that the government underestimates inflation, most notably economist John Williams.  (See “Shadow Government Statistics.”) 

Secondly, it must be remembered that even real per capita GDP is not a measure of Americans’ purchasing power.  All increase in per capita GDP is due to increases in productivity and, contrary to what most economists would have you believe, there is no relationship between productivity and income.  Income is a function of the demand for labor.  So even an increase in real per capita GDP is no proof of a rise in the standard of living.

And what’s happening to the demand for labor?  The Labor Department reported this morning that another 631,000 workers filed for unemployment last week, and continuing claims jumped dramatically to 6.27 million, the 15th straight weekly increase.  Annualized, these weekly jobless claims work out to 32.8 million people losing their jobs every year, or 23% of the work force.  Given that data, it doesn’t take a genius to figure out that the demand for labor is falling fast and so too will wages and benefits. 

If the Obama administration wants to help the economy, it can stop giving away a big chunk of the pie to the parasitic economies of export-dependent countries and it can stop importing people to share what pie is left.  And the best way to help Americans improve their purchasing power is to boost the demand for labor relative to the size of the labor force.  Shrinking the denominator in that equation is the most effective way to do it.  Stop giving away our market to labor forces that consume no American-made products, and stop ballooning our own labor force by importing more foreign workers.  It’s just common sense.

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4 Responses to Real Per Capita GDP Falls at Annual Rate of 7.0% in First Quarter

  1. mtnmike says:

    Pete,

    I have been on record as declaring that the U.S. has hit zenith for increasing real GDP as a per-capita share.

    While I have never attempted to calculate a third element of this equation, that of debt, it must taken into consideration.

    If GDP rises by say $500K, and Debt rises by $1 Trillion,and population rises by 1 million, was there a rise in adjusted GDP or a severe decline? I would very much like your opinion on this question.

    Thanks, Mike

    • Pete Murphy says:

      Excellent point, Mike. Obviously, in the scenario you offered, the government would book an increase in GDP of $500,000. The Federal Reserve would take note of the rise in debt. Economists would be happy. But it’d be a sour situation for the average American. The government would then observe rising unemployment and falling incomes and conclude that we need to spur GDP further with more debt.

  2. mtnmike says:

    Pete,

    That may much closer than we would care to believe!

    If national and consumer annual debt increases are greater than GDP increases for the same year, is there a real increase in GDP? Do government GDP figures account for rising debt at all? I’m personally not sure.

    • Pete Murphy says:

      Mike, I’m pretty sure that GDP includes government spending on goods and services. I don’t think it matters whether it’s financed by revenue or debt.

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