Economic Growth Since World War II


As we await (probably in vain) the resumption of robust economic growth, let us see what we can learn from the record since World War II (from 1947, to be precise). The  Bureau of Economic Analysis (BEA) provides  in spreadsheet form (here) quarterly and annual estimates of current- and constant-dollar (year 2005) GDP from 1947 to the present. BEA’s numbers yield several insights about the course of economic growth in the U.S.

I begin with this graph:

Real GDP 1947q1-2016q1

The exponential trend line indicates a constant-dollar (real) growth rate for the entire period of 0.81 percent quarterly, or 3.3 percent annually. The actual beginning-to-end annual growth rate is 3.1 percent.

The red bands parallel to the trend line delineate the 99.7% (3-sigma) confidence interval around the trend. GDP has been running at the lower edge of the confidence interval since the first quarter of 2009, that is, since the ascendancy of Barack Obama.

The vertical gray bars represent recessions, which do not correspond precisely to the periods defined as such by the National Bureau of Economic Research (NBER). I define a recession as:

  • two or more consecutive quarters in which real GDP (annualized) is below real GDP (annualized) for an earlier quarter, during which
  • the annual (year-over-year) change in real GDP is negative, in at least one quarter.

For example, annualized real GDP in the second quarter of 1953 was $2,593.5 billion (i.e., about $2.8 trillion in year 2009 dollars). Annualized GDP for the next  five quarters: $2,578.9, $2,539.8, $2,528.0, $2,530.7, and $2,559.4 billion, respectively. The U.S. was still in recession (by my definition) even as GDP began to rise from $2,528.0 billion because GDP remained below $2,593.5 billion. The recession (i.e., drop in output) did not end until the fourth quarter of 1954, when annualized GDP reached $2,609.3 billion, thus surpassing the value for the second quarter of 1953. Moreover, the year-over-year change in GDP was negative in the first three quarters of the recession.

Unlike the NBER, I do not locate a recession in 2001. Real GDP, measured quarterly, dropped in the first and third quarters of 2001, but each decline lasted only a quarter. But, whereas the NBER places the Great Recession from December 2007 to June 2009, I date it from the first quarter of 2008 through the second quarter of 2011.

My method of identifying recessions is more objective and consistent than the NBER’s method, which one economist describes as “The NBER will know it when it sees it.” Moreover, unlike the NBER, I would not presume to pinpoint the first and last months of a recession, given the volatility of GDP estimates:

Year-over-year changes in real GDP

The second-order polynomial regression line gives the best approximation of the post-war trend in the rate of real growth. Not a pretty picture.

Here’s another ugly picture:

Real GDP by post-WW2 business cycle

Rates of growth (depicted by the exponential regression lines) clearly are lower in later cycles than in earlier ones, and lowest of all in the current cycle.

In this connection, I note that the “Clinton boom“ — 3.4 percent real growth from 1993 to 2001 — was nothing to write home about, being mainly the product of Clinton’s self-promotion and the average citizen’s ahistorical perspective. The boomlet of the 1990s, whatever its causes, was less impressive than several earlier post-war expansions. In fact, the overall rate of growth from the first quarter of 1947 to the first quarter of 1993 — recessions and all — was 3.4 percent. The “Clinton boom” is the boom that wasn’t.

Even more depressing (pardon the pun) — but unsurprising — is the feeble rate of growth since the end of the Great Recession: 2.0 percent. And it will get worse before it gets better. As long as the fiscal and regulatory burden of government grows, the economy will slide deeper into stagnation.

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