GNP analysis: long-term growth is slowing sharply
Many economists refused to accept the first-quarter estimate of 2.1 percent for the annual rise in United States gross national product. Surely, they argued, the figure would be revised upward. The number was revised -- but downward, to 1.3 percent. It has been revised again, to 0.7 percent.
Is the latest figure for real? Is the recovery from the 1981-82 recession stalling, or even disappearing?
The fact is: Long-term growth in the US is slowing drastically.
The rise in first-quarter GNP was minute. One has to realize that number describes the annual rate -- four times the quarterly rate. The actual fourth-quarter 1984 to first-quarter '85 increase was less than two-tenths of 1 percent.
To show how small the first-quarter increase is if continued through 1985, the four-quarter rise in 1985 of 0.7 percent will compare with a corresponding 5.7 percent during 1984 -- a drastic slowdown.
With the federal deficit rising from $161.3 billion (annually) in first-quarter '84 to $197.3 billion in fourth-quarter as GNP rose 3.2 percent, you can imagine the negative effect on the deficit if GNP rises only 1 percent in the next three quarters.
As for GNP rebounding in second-quarter '85: That is probable, unless the economy peaked in March and a recession is under way. With very few exceptions, GNP quarterly changes slow and speed up, slow and speed up, from quarter to quarter.
But enough of dwelling on first-quarter 1985. What about GNP and long-term US economic growth?
You may have seen comparisons of US growth since the 1981-82 recession ended and how that has compared favorably with gains in previous economic recoveries from recessions. And you're surely aware of the emphasis that has been placed on the growth in jobs since the recession ended. Much political hay has been made of this.
Unfortunately, such comparisons are made from recession lows that were unique in post-World War II history in the US.
For the first time in that history, the lows reached in the 1981-82 recession by the country's major economic measure were near or below the lows reached in the previous recession. On every other such occasion, the lows in a recession were well above the lows reached in the previous recession.
A normal recovery, even a favorable one, from the extraordinarily deep lows of the recession leaves the economy far short of resuming earlier long-term growth.
There are those who would suggest, therefore, that comparisons of today's economic levels should be made with the previous high in the economy, not the previous low.
But this comparison, too, is faulty. The previous highs in the economy, reached during the shortlived 1980-81 recovery, represented the worst economic recovery in the postwar period and left the economy in 1981 far below the highs necesssary to perpetuate long-term growth.
A proper comparison of the present levels of economic activity would be against what the country could have expected if the growth trend in the years preceding the 1980 recession had persisted.
Such a comparison shows today's measures of GNP, employment, and industrial production far, far below where they should be.
If we extend the GNP growth rate of first-quarter 1973 to third-quarter 1979 through first-quarter '85, we find GNP should be $1.725 trillion at an annual rate -- compared with the actual $1.665 trillion. Nonagricultural employment would be 104.3 million, compared with today's 96.5 million.
GNP growth, measured from peak to peak, has lessened every seven years or so since 1959. The 1979-85 annual rate of 2.1 percent compares with 2.7 percent in 1973-79, with 3.6 percent in 1966-73, and with 4.5 percent in 1959-66.
Two recessions in the last five years, one of them the worst since the 1930s, have been more than the United States is equipped to handle and still maintain respectable long-term growth. The huge federal deficit that has evolved since 1979 is the direct consequence of the absence of tolerable economic growth since 1979.
No conceivable improvement in the GNP rate during the rest of 1985 is going to restore long-term growth in the US. And if the poor rise in first-quarter GNP portends a recession for the rest of the year, the problem of long-term growth will become critical.
Mr. Lempert is director of Statistical Indicator Associates in North Egremont, Mass.