The Dark Side of the GDP

GDP grew 3.5% last quarter, technically ending the recession. So why are pundits still worried?

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U.S. GDP rose by 3.5% last quarter, technically ending the recession that began in December of 2007. This figure is up from a 0.7% decline the previous quarter. While a positive long-term indicator, this will likely be of little comfort to Americans still suffering the effects of unemployment. Jobless claims, though slowing, are still climbing and the unemployment rate of 9.8% is likely to worsen. Far from celebrating, these economic pundits think GDP growth masks fundamental problems:

  • Artificial, Temporary Growth  Washington Posts's Frank Ahrens warns that "growth" is just a one-time boost from stimulus spending. "Many economists believe this is a one-time bump, a caffeinated Red Bull jolt to the economy provided by the $787 billion stimulus passed in February," he writes. "It can only prop up the economy for so long before it either has to organically take over and grow on its own or falter again. That's what the grim "double-dip" economists are predicting. In other words: don't be surprised to see fourth-quarter GDP recede from whatever Thursday's number turns out to be."
  • One Quarter Doesn't Mean Much  Matthew Yglesias insists that it will take several more quarters of stimulus-based growth for employment to recover. "You'd have to sustain growth at that level for quite a few quarters before the labor market returns to good health," Yglesias writes. "The key question going forward is will policymakers continue with growth policies until unemployment falls and wages are growing, or will they give in to demands from coupon-clippers and goldbugs to put the breaks on?"
  • Nothing to Get Excited About  The Awl's Choire Sicha worries the image of growth masks the real problem--unemployment. "So what does this mean? It actually seems to mean: If the government spends a big bunch of money, and if the dollar is also depressed enough to make international export attractive, then we basically don't need 20% of the active workforce to have the jobs they don't have! This bodes really well for the future. (And for us having death panels, and stadiums full of live human cage matches.)"
  • Employer Demand Doesn't Mean Jobs  Business blogger Barry Ritholtz points out that just because employers want more labor doesn't mean they'll start hiring. "Given the current 33.1 hour work week, we might not see a real improvement in employment for years, as firms simply ramp up worker hours towards a fuller 40 hour work week, as opposed to hiring," he writes. "The economy might have reached a state of stasis -- a balance where it neither expands nor contracts."
  • Watch Out for the Next Dip  Business Insider's John Carney lists four reasons the GDP growth "isn't really good news." One, it's a W-shaped recession and we're about to hit the second dip. Two, it's all artificial stimulus-based growth. Three, the government is accruing so much debt we're setting ourselves up for another disaster. Four, and perhaps worst, it's "another loose-money economic bubble" that will lead to another recession.
This article is from the archive of our partner The Wire.