Another casualty of the growth recession. (Photo Credit: CC BY/khteWisconsin/Flickr)

Think it’s time to celebrate economic recovery? Don’t get cocky, suggests Investor’s Business Daily. In this job-starved economy, we’re already living a kind of double-dip recession that economists call a growth recession.

What’s a growth recession?

When economic growth is so low that it creates net unemployment, that’s growth recession. Growth recession can also suggest underachievement, or below-potential growth in such areas as job creation. Job contraction typically means that a country’s real gross domestic product is expanding, but too slowly.

Numbers in a tailspin

Here are just a few of the signs that a growth recession is here, writes Investor’s Business Daily:

• ADP Payroll Services found that 38,000 private-sector jobs were created in May 2011. That’s 100,000 short of the minimum goal economists had marked for economic growth.
• Employment consultant company Challenger, Gray & Christmas noted that 37,135 jobs were cut in May, a 2 percent increase from the previous month.
• U.S. housing prices fell 4.2 percent in the first quarter.
• The Mortgage Bankers Association’s mortgage application index fell 4 percent in May’s final week.
• The Institute for Supply Management’s factory activity index – an indicator of U.S. manufacturing health – dropped from 60.4 in April to 53.5 in May, the lowest score on the index since September 2009.

Re-enter the recession

U.S. gross domestic product growth was reported at 2.7 percent in May, which most economists believe is insufficient to create private sector jobs and beat back unemployment. Match this uninspiring growth with continued frantic borrowing by the U.S. government ($1.5 trillion estimated for 2011), and avoiding a prolonged double-dip recession seems impossible.

According to Michael Pento, senior economist at Euro Pacific Capital, the U.S. is following the wrong formula for economic health.

“Genuine government stimulus comes from low taxes, stable prices, reduced regulation and low debt,” said Pento. “Our economic policymakers have scrupulously avoided such remedies.”

Summer 2011 will bring economic déjà vu , says The Indypendent. The Federal Reserve is backpedaling; spending cuts and tax increases on the city and state level are in progress, and federal spending is pointing downward. Combine everything, and the U.S. will likely face not just a growth recession, but a full-blown return to depression.

Growth recession at teatime

Sources

Growth recession Wiki

The Indypendent

Investor’s Business Daily

Measuring the GDP is difficult; is it even worth coming up with the number? Image: Flickr / michaelreuter / CC-BY

The Gross Domestic Product forecast in the United States has recently been downgraded. In many news reports, the GDP is seen as the biggest indicator for how well the economy is doing. However, the GDP is an outdated and inaccurate way of measuring economic growth.

The basics of GDP

The Gross Domestic Product is a single number that encompasses the entire value of goods and services produced in one country. GDP began as a measurement of the standard of living in various countries, but it is used in several other ways. Gross Domestic Product is usually figured by adding up private consumption, gross investment, government spending and exports (minus the gross amount imported). GDP was first calculated in 1934 for a report given to Congress by economist Simon Kuznets. The Federal Reserve bases many of its monetary decisions, at least partially, on the GDP figure.

Inflation, consumer price and the GDP measure

Since it was first created, the measure of Gross Domestic Product has had limitations. The Bureau of Economic Analysis releases a number referred to as “real” GDP that adjusts the number for inflation. Without that adjustment, the GDP would always appear to be growing with the rate of inflation. The Consumer Price Index, which is a measure of the inflation or deflation of the cost of most household goods, also has no effect on the GDP. So if the cost of household goods goes up by 400 percent, it is seen as a growth of the GDP, despite the fact that the average American has less disposable income.

Why the GDP is like a credit card

The biggest limitation of the GDP measure is that it does not take into account any negative numbers. To translate the GDP in terms of a household budget, it would be as if you measured the health of your household finances based on how much money you spent — both in cash and on your credit cards. The repayment on those cards that would eventually come due, the damage to your budget and the possibility you wouldn’t make your mortgage payment are all left on the cutting room floor. Measuring the economic growth of the United States — or any country — based solely on GDP is too simplistic to be accurate.

Sources

The Money Alert
Blogging Stocks
Investopedia

U.S. GDP, driven by consumer spending, was higher in the third quarter than first reported, but not high enough to lower the unemployment rate. Image: CC Charlie Brewer/Flickr

U.S. GDP growth in the third quarter has been revised to a higher rate than reported earlier. However, as the economy struggles to get in gear, that’s not saying much. U.S. gross domestic product expanded at a 2.5 percent annual rate from July through September, about half the rate needed to affect the unemployment rate.

Consumer spending drives U.S. GDP

Gross domestic product, the value of goods and services produced in the U.S., is used as a broad measure of economic growth. The 2.5 percent growth of U.S. GDP in the third quarter was driven by consumer spending and increased exports. According to a Commerce Department report, consumer spending was predicted to rise 2.6 percent but increased at a 2.8 percent annualized pace, the strongest result since 2006. Exports were revised upward to 6.3 percent from the 5 percent originally reported. The U.S.economy expanded 3.2 percent in the past four quarters, the strongest year-over-year growth since the first quarter of 2005.

Obstacles to economic growth

The Commerce Department report also revised wages and salaries in the second quarter upward from a $51.1 billion increase to a $97.4 billion increase from the first quarter. The new figures suggest that consumers could have the resources to continue supporting economic growth in the near future. But the increase in consumer spending isn’t expected to be enough to offset the drag of a moribund housing market. Prices remain depressed by anemic sales and a huge inventory of unsold homes and foreclosures. The National Association of Realtors said existing-home sales slipped 2.2 percent in October. The median price for a home sold in October dropped 0.9 percent from a year ago.

High unemployment will persist

Most economists agree that a U.S. GDP annualized growth rate of 2.5 percent does nothing to move the unemployment rate downward. The consensus is that until GDP hits at least 5 percent growth, unemployment will be stuck at 9.6 percent. Growth is forecast at about a 2.3 percent rate for the rest of the year.

Sources

Associated Press

Bloomberg

MarketWatch

The October jobs report shows the 10th straight month of private sector job growth, but the unemployment rate remains stubbornly unaffected. Image: CC TheTruthAbout/Flickr

The October jobs report released Friday by the Labor Department said that the U.S. economy created 151,000 jobs last month. The job creation numbers were more than expected, but barely enough to keep up with U.S. population growth. As a result, the unemployment rate remained stuck at 9.6 percent despite the job gains.

October jobs report numbers

The October jobs report was a somewhat pleasant surprise for economic forecasters that expected a net increase of about 60,000 jobs. The Labor Department report was a major improvement over September’s numbers, which showed a net loss of 41,000 jobs. After hemorrhaging jobs for two straight years, the private sector has shown job growth for 10 months in a row. The October numbers were the best since May. U.S. companies hired an additional 159,000 people in October, exceeding the 92,000 jobs predicted by economists. The government cut 8,000 jobs in October, which resulted in the 151,000 total.

Industries that are hiring

According to the October jobs report, industries that are hiring include health care, retail, temp workers, mining and small businesses. Health care providers hired 24,000 workers. Food service hired another 24,000 and retailers added 28,000. The temporary work force grew by 35,000. A weaker dollar boosted mining to the tune of 8,000 jobs. Because it takes small businesses longer to report their hiring activity to the Labor Department, job creation numbers from August and September were revised upward by 110,000.

A long, hard road ahead

Despite the October job creation, the U.S. has a long way to go. Economic growth is still too weak to affect the 9.6 percent unemployment rate. At least 15 million people are looking for work. Taking into account part-time workers who can’t find full-time jobs and people who have given up looking, the unemployment rate is 17 percent. According to the Brookings Institution, even if job creation grows to the highest levels of the past decade–208,000 jobs a month–it will take 12 years to close the gap between the growing labor force and available jobs.

Sources

CNN

Christian Science Monitor

New York Times

The video game industry has proven to be a stalwart cavalry unit as the U.S. economy faces its greatest need. (Photo Credit: CC BY-SA/xploitme/Flickr)

Video games have come a long way since Pong, Pac Man and Space Invaders. According to a recent study conducted by Economists Incorporated for the trade association Entertainment Software Association entitled “Video Games in the 21^st Century: The 2010 Report,” the video game industry contributed a robust $5 billion to the U.S. economy in 2009 alone. From 2005 to 2009, the video game industry’s annual growth has exceeded 10 percent, which is more than seven times the growth of the entire U.S. economy.

Video game industry creates jobs

ESA CEO Michael Gallagher said in a press release that job creation in the video game industry has continued at a “rapid pace,” while making “an important contribution to our nation’s economy while stimulating technological innovations and expanding the impact of games on our daily lives.” The video gaming industry regularly employs more than 32,000, and their average annual salary is $89,781, according to the survey. Directly or indirectly, the video game industry employs more than 120,000 people in the United States.

California is the golden state for the industry

California is the largest employer of video game industry workers. It provided more than$2.6 billion in direct and indirect compensation to its employees in 2009. That translated into $2.1 billion in revenue for the state.

In other states, Texas ranked second with 13,613 employees, followed by Washington (11,225). Virginia also showed tremendous growth from 2005 to 2009, expanding its video game industry presence by a whopping 77 percent.

Thinking about entertainment value

During a recession, entertainment expenses are among the first things to be downsized in a family’s budget. Video gaming may seem expensive on the surface – consoles cost from $200 to $500, and PCs cost even more. Games range from $20 to $60, depending upon their popularity, age, format, etc. But if a consumer can derive somewhere between 40 and 100 hours of playtime from a well-constructed game, the price seems much more reasonable, particularly when compared with more passive forms of entertainment like movies, the price of which has skyrocketed in recent years. Video games have been proven to promote hand-eye coordination and even have therapeutic and developmental uses. Plus the video game industry has had positive effects on the U.S. economy.

Sources:

“Video Games in the 21st Century: The 2010 Report“

Washington State Lt. Gov. Brad Owen knows ‘Pong’