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A Historical Perspective on the Current Recovery

The second estimate for real GDP growth in the first quarter of 2011 came in at 1.9 percent, a decrease from the previously estimated 2.2 percent. This also represents a substantial deceleration from the fourth quarter of 2011, when GDP grew at a 3 percent rate. Personal consumption expenditures, GDP’s main component, actually grew faster in the first quarter of this year, at 2.7 percent, than in the last quarter of 2011, when it grew at only 2.1 percent. But substantial decreases in private investment, where residential investment was the only bright spot, meant that overall GDP growth slowed down.

By now, everybody is well-aware that the current recovery is a slow one. The chart below compares the evolution of GDP in this recession (indexed to the peak of the business cycle) to the average post-WWII recession. Not only is the recent recession deeper and longer than the average post-WWII recession, but following the trough, 6 quarters into the episode, the divergence between the current recovery and the average of previous recoveries is apparent. In particular, the fact that the gap is widening compared to where it was at the recession’s trough means that it is not just GDP levels that are different this time around. Growth rates continue to be below average.

Economy-Wide Output

Not all sectors of the economy are performing in the same way vis-à-vis the average recession episode. The nonfarm business sector—the whole economy excluding the economic activities of the general government, private households, nonprofit organizations serving individuals, and farms, representing about three quarters of the economy—was hit harder than the economy as a whole, even after accounting for the fact that the average output of the nonfarm business sector decreases by more than GDP in an economic downturn.

Nonfarm Business Sector Output

Despite having been hit harder, the nonfarm business subsector has had a stronger recovery relative to the whole economy when compared to its average historical recovery. This is shown in the chart below, where the gap between the recent recession and the average recession’s GDP is indexed to 100 at the trough of the business cycle. Here we see that the gap has doubled since the trough. If we look only at the nonfarm business sector, though, the increase in the gap is much smaller, at about 75 percent, meaning that businesses are going through a better recovery (while still poor in historical terms) than general government, sole proprietorships, and nonprofits.

Nonfarm Business Sector Output

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