The second year of an upswing: past isn't much of a prologue
The course of gross national product (GNP) in the second year of an economic upswing in the United States has no consistent relationship to its behavior in the first year of an upswing.Skip to next paragraph
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Contrary to what you may have read elsewhere, the answer to how rapidly or slowly GNP rises, or falls, during the next 12 months is not aided or restrained by the nature of its rise during 1983. Before the current upswing, which began in December of 1982, there had been seven major economic upswings in the US during the post-World War II years.
Just about the slowest GNP increase in the first year of an upswing was between November 1970 and November 1971. The GNP increase in the second year of that upswing was the fastest on record.
Just about the fastest GNP increase in the first year of an upswing was between May 1954 and May 1955. The GNP increase in the second year of that upswing was the slowest on record.
''Oh,'' some readers are saying, ''the second year tends to be the opposite of the first year.''
No, the slowest GNP first-year increase (in July 1980-July 1981) was followed by the worst second-year GNP performance. That ''worst'' performance in July 1982-July 1983 is the only instance in the seven upswings in which GNP decreased during the second year. Moreover, the best first-year GNP performance in an upswing (October 1949-October 1950) was followed by the second-best second-year increase.
There just has not been any consistent rhyme or reason to suggest what the second year of an economic upswing is going to be from what happened in the first year.
Misunderstandings of GNP abound.
In reporting the modest fourth-quarter 1983 rise in GNP, many observers stressed the negative impact of the US foreign-trade balance. Some reported that the tremendous Christmas buying turned out to be based on buying of massive amounts of imported goods.
The fourth-quarter increase in US deflated exports, however, was the second greatest in nearly three years and resulted in the first two successive quarterly increases in US exports in those three years. Moreover, the fourth-quarter level of exports was the greatest since fourth-quarter 1982! Clearly, the increase in exports meant more US goods were being produced for export.
Now, what about the tremendous Christmas increase in US consumer buying. There was no such increase! It was the figment of one's imagination from seeing news media reports that dutifully told of retailers' cries of joy without any reliable statistical justification.
The fourth-quarter 1983 rise in total personal consumption expenditures on foreign and domestic goods was far less than that in second-quarter 1983, for example. So much less that increased buying of foreign goods, which did occur, had a greater negative impact on total GNP than it would have had if total consumer buying had increased as it did in the second quarter.
Moreover, most of the Christmas buying was of goods produced earlier in the fourth quarter. If there had been a major rejection of US-produced goods, we would have expected to see a massive upsurge in business inventories. Inventory change was positive and greater than in the third quarter, but it was modest for the fourth quarter of an economic upswing.
An attempt to read into what has happened to GNP in the recent past so as to gain some insight for the future is fraught with difficulties and frustration. Certainly, the 1983 record of GNP in refusing to do what was popularly expected of it from quarter to quarter should alert us to question what is being derived with respect to the future from its fourth-quarter 1983 performance.
In the second year of an economic upswing, GNP has, with one exception, appreciably slowed its upward pace. We would look with surprise on the contention that the slow fourth-quarter 1983 increase implies a strong GNP performance during 1984. The average increase in GNP during the second year of an upswing has been about 4 percent (if we exclude the unusual 1981-82 decrease). It would be reasonable to look for a similar rise from fourth-quarter 1983 through fourth-quarter 1984.