Down shifting in the economy

Date posted: September 24, 2010

One of the most watched gauges on the economy — the growth rate in real gross domestic product — was released recently, and it raised some eyebrows. N.C. Cooperative Extension economist Mike Walden explains why:

“What that simply means is how fast our growth is in terms of what we are producing in the economy. Both products — manufactured products — as well as services. The government puts this out every quarter. It’s an avidly watched number. And they actually put out a couple of estimates — three to be precise. And their first estimate for the second quarter, essentially the spring and early summer of this year, was that the economy grew by 2.4 percent. The revised number, however, showed that it grew by only 1.6 percent. So that was not good; that indicated the economy was growing slowly.

“Now a couple of things about this: Number one, even though the growth rate was revised downward we are still growing. So that’s good. The bad news though is that 1.6 percent growth rate is very, very slow. We would normally be growing somewhere between 4 and 5 percent. And this has a direct impact on jobs, because the faster gross domestic product is growing, the more jobs are being created. So this number is linked to the slow increases we have been seeing in jobs.

“The other concern is that 1.6 percent is so low that if we had something unexpected come along — some bad thing in the world or national economy (such as) a hurricane, some big problem in the Middle East — it could easily knock us below zero, which would potentially mean another recession.”

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