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Monday, March 18, 2024

Real GDP Per Capita and the Year-over-Year Change

Courtesy of Doug Short.

Note from dshort: This morning we learned that the Second Estimate for Q4 real GDP came in at 3.0%, up from the Advance Estimate of 2.8%. The latest data does not significantly change the long term view of real per-capita GDP, but it did slightly decrease the recession warning implicit in the latest real GDP year-over-year percent change, now at 1.62%, a fractional improvement over the Advance Release YoY 1.56%, which was an improvement over the 1.46% YoY as of the Third Estimate of the previous quarter.


My monthly updates on GDP and its revisions feature column charts illustrating real GDP. These have the advantage of highlighting the patterns of change and the correlation between negative GDP and recessions.

 

 

Real GDP Per-Capita Growth

For a better understanding of the historical context, here is a chart of real GDP per-capita growth since 1960. For this analysis I’ve chained in current dollars for the inflation adjustment. The per-capita calculation is based on the mid-month population estimates by the Bureau of Economic Analysis, which date from 1959 (hence my 1960 starting date for this chart, even though quarterly GDP has is available since 1947). The population data series is available in the FRED series POPTHM. I used quarterly population averages for the per-capita divisor. Recessions are highlighted in gray. The logarithmic vertical axis ensures that the highlighted contractions have the same relative scale.

 

 

The real per-capita series gives us a better understanding of the depth and duration of GDP contractions. As we can see, since our 1960 starting point, the recession that began in December 2007 is associated with a deeper trough than previous contractions, which perhaps justifies its nickname as the Great Recession. In fact, at this point, 14 quarters beyond the 2007 GDP peak, real GDP per capita is as far off the all-time high as the trough that followed the recession in the early 1990s. We can also see that the recovery from the last recession had flattened out over the past three quarters, although the latest estimate is a step, albeit small, in the right direction.

Year-Over-Year (YoY) GDP Percent Change and Current Recession Risk

Economists vary widely in their opinions about the present-day recession risk. The official call on recessions, of course, is the domain of the National Bureau of Economic Analysis, which makes the determination on recession start and end dates several months — sometimes more than a year — after the fact.

The next chart shows the YoY change in real GDP from the earliest quarterly data in 1947. I’ve again highlighted recessions. The red dots show the YoY real GDP for the quarter before the recession began. The blue dot shows the latest YoY real GDP. Note: Unlike the previous chart, this one does not include a per-capita adjustment.

 

 

As the chart illustrates, the latest YoY real GDP, at 1.62% is up from last quarter’s 1.46%. At 1.62% the YoY number is below the level at the onset of all the recessions since quarterly GDP was first calculated — with one exception: The six-month recession in 1980 started in a quarter with lower YoY GDP (at two decimal places it was 1.26% versus today’s 1.62%). However, there have been some quarters with a YoY GDP below the current level when a recession did not immediately follow: The third quarter of 1956 (YoY = 0.76%) and Q1 of 2003 (YoY = 1.50%). Also in Q1 2007 the YoY dropped to 1.24%, but the recession that followed began three quarters later in December 2007.

In my weekly updates on the ECRI recession watch, I’ve been referencing latest the Hoisington Investment Management quarterly report, which has a forecast for a 2012 recession accompanied by an interesting analysis that warrants close reading. Here is a snippet from the closing paragraphs:

[T]he 2012 recession will be caused by the combination of retreating capital spending, lower consumer spending growth, declining exports, and a spending drag from all levels of government.

The full report in PDF format is available at the Hoisington website.

 

 

 

 

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