"How Does This Recovery Stack Up?"

This post, “Current recovery great for profits, poor by most other measures,” by Josh Bivens at the Economic Policy Institute, speaks for itself:

Recent data regarding fourth quarter (2006) growth in U.S. gross domestic product (GDP) allows us to examine how the current recovery, now entering its fifth year, stacks up against the five other recoveries since World War II that lasted as long. This assessment can shed light on the effectiveness of macroeconomic policies enacted in the name of improving economic growth.

This much is clear: the current recovery substantially lags the historical average in GDP growth, employment growth, investment in equipment and software, and, with the deflating housing market, even in residential investment.

Conversely, corporate profit growth in the current recovery (despite a 3% dip in the last quarter of 2006) has been more than twice as rapid as in the past.

In short, the current recovery looks weak on all measures except profit growth. As a policy lesson, the large tax cuts of 2001 and 2003, which have had ample time to affect the economy by now, have failed to deliver economic performance that even matches up to the past average.

Source: Author’s calculations from data taken from the Bureau of Economic Analysis (BEA), National Income and Product Accounts (NIPA), and the Bureau of Labor Statistics (BLS).

I submit that there is a causal relationship between the high profit growth and the lagging performance in other areas. Companies have been obsessed with profits, and have resorted to extremes in cost-cutting to achieve them. That in turn means they have been reluctant to invest in the things that produce growth: staff, equipment, marketing, R&D, which results in lower GDP growth. Workers, who see that employment is more tenuous and new jobs harder to come by than in the past, are more cautious about residential investment.

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