US recovery slowest since World War II
North Egremont, Mass.
The current recovery in the US economy from the recession earlier in 1980, as measured by real gross national product, is the slowest of the sevent post-World War II recoveries.
Much emphasis has been placed on the fourth-quarter 1980 rise in real GNP being surprisingly rapid in the light of the high-interest economy which now prevails. But the fact is that the two quarters of recovery since the second-quarter- 1980 low have clearly been retarded by the high interest rates.
The percentage increases in real GNP in the first two quarters of economic recovery in the seven such recoveries since 1949 have been as follows: IV 1949 -- II 1950 7.25% II 1954 -- IV 1954 3.34% I 1958 -- III 1958 3.07% IV 1960 -- II 1961 2.46% IV 1970 -- II 1971 2.97% I 1975 -- III 1975 3.49% II 1980 -- IV 1980 1.83%
The figures shown in the table are the actual percentage changes over the two quarters, not the "annual" rates usually referred to in articles on GNP. For example, much was made of the 5 percent annual rate of rise of real GNP in fourth-quarter 1980. Note that the "annual" rate is roughly four times the actual 1.29 percent increase between third and fourth quarter 1980.
It is rather interesting that the actual rate of growth in the first two quarters of past recoveries has been within a rather narrow range from 2.5 percent to 3.3 percent.
The exceptionally rapid rate of rise in 1949-50 was attributable to the speculative economic activity that accompanied the Korean war.
The exceptionally slow rate of rise in 1980 is attributable to the speculation in money, not in economic activity. There is no way to describe the recent wild fluctuations in interest rates other than as the result of speculative activity in the money markets relative to expectations for inflation.
Today's impact of inflation on GNP is seen in a similar table of two-quarter GNP recoveries in so-called "current" dollar GNP rather than real GNP. (To obtain real GNP, current-dollar GNP is deflated by the differences in prices for the periods being measured.) IV 1949 -- II 1950 7.90% II 1954 -- IV 1954 3.67% I 1958 -- III 1958 3.91% IV 1960 -- II 1961 2.85% IV 1970 -- II 1971 5.94% I 1975 -- III 1975 6.67% II 1980 -- IV 1980 6.89%
In every instance, GNP unadjusted for inflation shows a greater two-quarter recovery than its real GNP counterpart. The differences are not especially great through 1961. Then, as inflation accelerates, the differences become appreciable. Then, in 1980, we see the largestm two-quarter recovery increase, not the smallestm increase, since the 1949-50 Korean war upsurge.
The rate of rise in GNP in the first two quarters of a recovery is not prophetic of the ultimate magnitude of the final recovery. The longest recovery (1961-69) followed the mildest two-quarter recovery. The shortest recovery ( 1958-60) followed a relatively mild two-quarter recovery.
In my last Monitor article (Oct. 30) it was noted, "The idea that the economy perpetuates its most recent rate is pretty much an old wives' tale. Much is made of the upward or downward momentum in the most recent quarterly rate, as if that tells us something about the future."
". . . the lack of any great upward momentum in the third-quarter GNP increase provides no clue to the pace of the economic recovery that lies ahead."
Thus, the fourth-quarter 1980 rise in real GNP was twice the third-quarter rise.
The preponderance of opinion does appear to be that the next two quarters will be even less impressive than the last two quarters.
If so, the first four quarters of the current recovery will compare even less favorably with the six previous economic recoveries in the post-World War I I years.