Jun 29, 2015 - 12:30pm

Three Down Quarters in a Weak Recovery


Senior Vice President, Economic Policy Division, and Chief Economist

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Janet Yellen, chair of the U.S. Federal Reserve, speaks during a news conference. Photo credit: Andrew Harrer/Bloomber

The U.S. economy contracted in the first quarter according to the latest government data, sadly reinforcing once again the weakness of the recovery under this administration.  How weak is it?  Six years into the recovery the Fed is still running a hugely accommodative monetary policy and is only now contemplating beginning the long and slow process of normalizing policy. By her actions, President Obama’s own hand-picked Chair of the Federal Reserve Janet Yellen is confirming the poverty of his economic policies.

One oddity in the current recovery has been the lack of particularly strong growth periods.  Typically, there’s a strong bounce back.  So far, in the 23 quarters since the recovery began in 2009 the economy has managed to crack 4 percent only four times, and only once did this occur in consecutive quarters. The average has been a pedestrian 2.2 percent.

To be sure, even during strong recoveries economic growth as measured by quarterly GDP growth rates always has its ups and downs.  Sometimes this is due to weather issues, or strikes, or similar one-off events, and sometimes it may be due to the difficulties of taking snapshot measurements of an economy in motion.  Even allowing for these ups and downs, a contraction in the economy outside of a recession is extraordinarily rare.

How rare?  Since 1960 the U.S. economy has only experienced 5 individual quarters of contraction outside of recession, and three of them have occurred under this administration’s policies. The first occurred in the fourth quarter of 1970.  The second occurred in the first quarter of 1973, nestling these one-quarter in the middle of an expansion between the late-1969 mild recession and the 1974-1975 deep recession.  This was a troubled time for international events (oil price shocks) and domestic policy (high tax rates and wage and price controls).

Under this administration, the economy contracted in the first quarters of 2011, 2014 and 2015. Some have noted this pattern of first quarter contractions may be random or it may reflect a problem with the seasonal adjustments made to the data.  However, even if the seasonal adjustments are off, correcting them would only shift the weakness to a previous or the following quarter.  The weakness remains.

The economy as recorded in quarterly GDP estimates will have its ups and downs, but the downs only produce contractions – 3 so far in this recovery – if the underlying trend growth rate is slow, like 2.2 percent.  To put it simply, subtracting 3 from 4 leaves 1 -- a positive number -- but subtracting 3 from 2 puts you in negative territory. 

The economy is showing no signs of sliding into recession, so growth likely resumed following the first quarter’s weakness. So fear is not the appropriate response, though frustration and outrage at policymakers tolerating this performance and its expected continuance is worthy of contemplation.   

 

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About the Author

About the Author

Senior Vice President, Economic Policy Division, and Chief Economist

Dr. J.D. Foster is senior vice president, Economic Policy Division, and chief economist at the U.S. Chamber of Commerce. He explores and explains developments in the U.S. and global economies.