GDP Grows by 3.2 Percent, Initial Claims for Unemployment Insurance Remain Elevated

Last Updated Apr 30, 2010 2:30 PM EDT

I have been worried since November of last year about the economy moving sideways, and more specifically about stagnating employment since February. Yesterday's release of initial claims for unemployment, which saw average claims increasing slightly, did nothing to change that assessment:

In the week ending April 24, the advance figure for seasonally adjusted initial claims was 448,000, a decrease of 11,000 from the previous week's revised figure of 459,000. The 4-week moving average was 462,500, an increase of 1,500 from the previous week's revised average of 461,000.

Initial claims have been moving sideways for four months, and are above the approximately 400,000 level many people believe represents the point at which jobs are being created rather than lost. Here's a graph of the series:

Initial The Red line is actual claims. The Black line is the four week average.
Here's a graph since 2007 that makes the recent sideways movement in claims more apparent:

Initial1 The Red line is actual claims. The Black line is the four week average.
Turning to other economic news, the Bureau of Economic Analysis released its advanced estimate of GDP growth for the 1st quarter this morning, and GDP growth was estimated to be 3.2 percent:

Real gross domestic product -- the output of goods and services produced by labor and property located in the United States -- increased at an annual rate of 3.2 percent in the first quarter of 2010, (that is, from the fourth quarter to the first quarter), according to the "advance" estimate released by the Bureau of Economic Analysis.
While some are reading this as encouraging news, and positive growth is certainly better than the alternative, a growth rate of 3.2% is not enough to make up for lost ground. That is, the economy is currently operating at below its potential level. A growth rate of 3.2% will keep things from getting worse -- the distance between the actual level of output and its potential level will not increase -- but the distance will not decrease either.(Potential output also grows at around 3 percent per year, the potential and actual output lines are moving parallel, but what we want is for the distance between the two lines to decrease.)

A 3.2 percent growth rate is not large enough to make up for the lost GDP during the recession. In past recoveries, GDP growth rates of 7% or more for several quarters were not unusual, but so far we are not seeing growth rates at that level. Until we do, the economy -- employment in particular -- is likely to continue its sideways movement.

[On the GDP figures, see also: Calculated Risk (here too).]
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    Mark Thoma is a macroeconomist and time-series econometrician at the University of Oregon. His research focuses on how monetary policy affects the economy, and he has also worked on political business cycle models. Mark is currently a fellow at The Century Foundation.