Sep 4, 2010

Answer to 9/3 Question of the Day

Yesterday, in response to arguments that a double-dip recession is imminent and a tepid jobs report, I asked:

What metric should we use to determine whether the economy is recovering?

Over the last few weeks the 24-hour news mavens have quoted all sorts of statistics to engender debate over the health of the economy. An alphabet of acronyms and abbreviations dominates every news show: GDP, CPI, CCI, RoI, BoT, GNP. A viewer is bombarded with quotes of the unemployment rate, exchange rate, consumer spending, home sales, the Dow Jones Industrial Average, NASDAQ, The S&P 500, and on, and on, and on.

In reality there is only one true measure of economic output: The gross domestic product (GDP).

The GDP is the sum of the market value for all the products and services created by an economy over a period of time. The word recession actually refers to two or more consecutive quarters of negative GDP growth. When we hear the word recession bandied about in the media it is more often than not misused.

I do not think that word means what you think it means!

According to the Bureau of Economic Analysis, the government agency that measures GDP, the economy is still growing. We are no longer in a recession and the recovery is working. Anyone who says otherwise is either 'wishcasting' or making noise ahead of the November election. We won't even know if a second recession occurs until we have two more negative quarters - in other words it will be late February 2011 before we'd know if we were in a recession.

Remember also that the jobs we shed aren't going to be jobs that we get back. Like I've said before, cars and manufactured goods are not going to be where the American people butter their bread in the future. If we don't start educating ourselves and retasking to meet the demands of the new economic realities, we will be out of work, out of our homes and hungry.

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