The Commerce Department announced on Friday that real (adjusted for inflation) U.S. GDP (gross domestic product) fell at an annual rate of 1.0%. However, since the U.S. population is growing, a more meaningful way to look at GDP is in per capita terms. After all, what matters to individual Americans is not the size of the whole pie, but the size of their slice.
Measured in those terms, real per capita GDP fell at an annual rate of 1.7%. This is the fourth consecutive quarter of declines in GDP, the longest since the Great Depression of the ’30s. Worse yet, the string of quarterly declines would now be six consecutive quarters if the recession had not been interrupted by a tiny rise in GDP in the 2nd quarter of ’08, thanks to the first economic stimulus plan implemented at that time by President Bush.
In the 2nd quarter, the U.S. population grew by approximately 520,000 people. (As an aside, it should be noted that this has contributed another quarter million workers to the labor force at a time when the economy is losing jobs at a frightening pace, thus adding to the downward pressure on wages and benefits.) Thus, when expressed in per capita terms, the 1.0% decline in GDP reported by the Commerce Department swells to 1.7%. In other words, contrary to economists’ belief that population growth is a critical component of economic growth, population growth has actually contributed to the decline in the financial picture of individual Americans.
Expressed in constant 2005 dollars (which is to say, adjusted for inflation), real per capita GDP fell from $42,167 in the first quarter to $41,988 in the 2nd quarter. This is 5% below the record of $44,166 set in the 4th quarter of 2007 and is the lowest figure since the 4th quarter of 2004.
But, who knows if the Commerce Department is even being honest about GDP? Could the decline in 2nd quarter GDP actually have been worse? Consider the 1st quarter. The 1st quarter decline in GDP was originally reported on April 30th as 6.1%. Each month after the original release, GDP is further refined. By the end of June, that 1st quarter figure had been revised downward to a decline of 5.5%, and the government eagerly hyped the number as evidence that our economic decline wasn’t as bad as first thought.
Well, guess what? Buried in the report of 2nd quarter GDP is a final revision of 1st quarter GDP. By this time, no one cares about the 1st quarter any more and so virtually no one reports it. But the final 1st quarter GDP figure was revised upward (from the most recent estimate) almost a full percentage point, to 6.4% – higher than the initial report on April 30th of 6.1%. Is the government playing games with economic data to provide a psychological boost to the economy? Is it possible that the 2nd quarter was actually worse than reported and, to avoid negative publicity about the state of the economy, they decided to load some of the decline back onto the 1st quarter? You be the judge.
Pundits applaud this smaller 2nd quarter decline in GDP as evidence of improvement in the economy. Some even call it “less negative growth.” Baloney. It’s not “improvement” or “less negative growth.” A decline is still a decline. And how much worse would it have been without the economic stimulus plan that was enacted in February? Has that spending really been “stimulative,” or is it holding back an even worse decline? More on that subject in a subsequent post. (Stay tuned. You’ll be shocked at the numbers!) But there’s also a bit of good news on population, which I’ll cover in yet another subsequent post.
The important take-away here is that population growth is contributing significantly to Americans’ economic decline.