Wednesday, February 03, 2010

Does real GDP growth signal recovery?

Over on Twitter this morning, The Kirk Report tweeted a link to a Wells Capital Management report that offers some upbeat news on prospects for economic recovery.

Here's an excerpt from that report entitled, "Current Real GDP Recovery Looks as Strong as 1975, 1982 Recoveries":

"Despite a strong fourth-quarter real GDP report, the debate surrounding the strength of the contemporary economic recovery lingers. Most seem to anticipate a subpar recovery similar to the last two during the early 1990s and after the dot-com meltdown in the early 2000s.

However, although the current recovery is only two quarters old, it is thus far closely tracking the strong recoveries of 1975 and 1982..."

There follows some interesting charts and data summaries which lead the authors to conclude that the current recovery, measured on real GDP growth, is much stronger than many had believed it would be.

I am happy to consider positive arguments for economic growth, but I'm also left to wonder how reliable these real GDP figures are, given the way we measure inflation statistics these days.

Tim Iacono at TMGM has a nice little chart that illustrates this relationship between real economic growth and inflation. Note how drastically the real GDP figures can change when inflation is overstated or understated.

For a more thorough discussion of why GDP figures are an unreliable and "heavily politicized" data point, please see this post on John Williams' Shadow Stats report on 4th quarter GDP.

Added notes: this blog post from the Daily Kos site offers an upbeat outlook on the GDP numbers and jobs recovery, similar to the Wells Capital report. What are your thoughts?