Weakness of the current US economic recovery compared to previous US business cyles
By John Ross
It has been pointed out that the present US economic recovery is the slowest since World War II. However the precise parameters of this are frequently not analysed nor are they placed in a longer term context. Both are significant as they show not only the cyclical situation but the continuation of a prolonged slowing of the US economy.
As regards the immediate weakness of the present recovery this is shown in Figure 1, which charts the course of US business cycles since 1973. The starting date in each case is the peak of the previous cycle and the numbers along the horizontal axis show the quarters since that peak. Also shown are a 2.6% growth trend line and a 1.6% trend line – these representing, as analysed below, 20 and 10 year moving averages for US GDP growth.
As may be seen not only was the downturn in US GDP in this recession deeper than in any previous one since World War II but recovery is far slower. The previous deepest decline in GDP in any US post-war recession was 3.2% following 1973 and by eight quarters after the previous peak in that cycle US GDP had regained its previous peak level. In the present cycle the maximum fall in GDP was 5.1% and 14 quarters into the cycle US GDP has still not regained its peak level. For comparison in the slowest previous US recovery, that following 1980, by 14 quarters after the peak of the previous business cycle GDP was already 4.9% above its previous peak level, whereas in this recession it is still 0.4% below it. In short this is both the deepest recession and slowest recovery in US post-World War II history by a considerable margin.
Even more significant strategically is the long term slowing of the US economy. This is illustrated in Figure 2, which shows a 20 year moving average for US growth with the latest data being for the 2nd quarter of 2011 – utilising such a long time frame removes the effect of purely cyclical fluctuations. The downward trend of US long term growth is clear. The annual average US GDP growth rate has declined from 4.3% in 1969, to 3.0% in 1990, to 2.6% by the 2nd quarter of 2011.
The current growth rate of the US economy is even lower if a 10 year moving average is considered. This is shown in Figure 3. By the 2nd quarter of 2011 the 10 year moving average of US GDP growth had fallen to 1.6%.
As noted, the 1.6% and 2.6% trend lines in Figure 1 therefore represent average 10 and 20 year growth rates for US GDP. As may be seen the recovery in the present recession is far lower even than these long term averages – which are themselves falls from previous levels.
In short the US economy is progressively slowing not only in cyclical terms but from a long term point of view. The present slow recovery is therefore not at aberration but a part of a long term trend.
Such a deep rooted slowing of the US economy clearly has major implications not only for the United States itself but for the pattern of development of the world economy.